True Peace of Mind in a Volatile Market
Jan 10, 2016 01:01PM ● Published by Keith Laibson
SA500 at New York Stock Exchange, 2011. Photo courtesy of Silveira Neto via Flickr.
The stock market continues to move up and down with all kinds of volatility. This is NOTHING new. In addition, many experts, talking heads on TV and in the Media are telling us the next crash is coming. Markets are volatile. They always have been and they always will be. Trying to time the market, guessing what it is going to do, or moving your money in and out based on what you think will happen is where most investors end up hurting themselves even more than a crash or volatility ever will.
The key to having true peace of mind and a positive investment experience is to understand we all already know the stock market is volatile. Your investment strategy, portfolios, and allocations should already be taking this fact into consideration. The purpose of what you are doing should be discussed and considered upfront. You should then invest in your accounts accordingly.
It is also common and appropriate to use different allocations on various accounts based on the use, purpose, and time horizon for needing to use the money. When this is done effectively, periods of market volatility should not matter, nor should you be concerned. The money one needs now or soon should never be exposed to volatility. The money for shorter and mid-term needs should have minimal exposure to it. Money for long-term future use has the time to withstand more.
When investing this way, you can feel confident in your strategy and market volatility should not be a concern. You can even further strengthen what you are doing by taking advantage of the constant ups and downs by utilizing a re-balancing strategy that we will discuss more in a future article.
The biggest mistake made in our 401k, IRAs and other Investment accounts is not realizing that our own personal emotions and behaviors often derail us from a prudent investment strategy.
Another common mistake is failing to set your accounts up correctly to begin with. When one reacts to volatility by getting in and out of investments they end up hurting themselves more. This fact has been proven time and time again. So do not do it.
The question is not should you react during times of volatility, but whether you have set up your allocation correctly to begin with. If so, then all you need to do is remind yourself that your strategy is sound and the prudent thing to do is stay the course… Yes, we know that is hard to do.
If you are not sure about your strategy or the allocation of your investments, then it might be a good time to review what you are doing with an Advisor.
About the Author
Keith Laibson is financial advisor and owner of Family Wealth Partners, a NC Registered Investment Advisory Firm based in Concord, NC. He has over twenty years of experience providing clients advice on the financial markets and implementing prudent investment strategies.