Thriving During Volatility
August 31,2015
After a tumultuous week with many ups and downs, markets regained ground to close in the black. For the week, the S&P 500 gained 0.91%, the Dow grew 1.11%, and the NASDAQ added 2.60%.[i]
It’s hard to watch your portfolio value fluctuate, especially when the money involved represents a lifetime of hard work and a comfortable future. If you’re at or nearing retirement, you might be feeling especially emotional about market movements.
Right now, U.S. markets are experiencing a period of significant volatility with rapid selloffs followed by powerful rallies. High stock valuations and concerns about global economic growth are contributing to the swings in investor sentiment.
During volatile times it’s very easy to get spooked and start questioning the logic behind your portfolio strategies. While it may seem tempting to pull out of the market and wait out the volatility, making investment decisions based on fear is usually the worst thing you can do. Behavioral economists have found that people feel the effect of market losses more than twice as powerfully as market gains.[ii] Losses hurt.
However, we can’t have the possible gains without the losses. It’s the nature of markets to move up and down, sometimes very rapidly. Trying to time markets is extremely difficult, and you’re unlikely to get the result you want by jumping in and out of markets.
So, what can you do when markets swing?
Use your head, not your gut. It’s natural to feel emotional about your hard-earned money. However, making emotional investing decisions can be very costly because you’re likely to buy and sell at the wrong time, potentially locking in your losses and losing out on gains.
Take a step back. We know that it’s hard to tune out the noise when media headlines scream that the sky is falling. Even when you know intellectually that pullbacks are normal, it’s natural to worry about whether this time is different. However, we recommend that you focus on the big questions:
- Have your goals changed?
- Has your investment time frame changed?
- Are your investments still in line with your goals?
Talk to us. If you’re worried about how recent market movements may affect your personal situation, we want to hear from you. Before making any decisions, give us a call to discuss your personal situation.
