“He pointed out to him the bearings of the coast, explained to him the variations of the compass, and taught him to read in that vast book opened over our heads which they call heaven, and where God writes in azure with letters of diamonds.” – Alexandre Dumas, The Count of Monte Cristo
Just like voyagers in classic stories, everyone needs help navigating safely through volatile markets. Market volatility is a normal and expected part of doing business. But how can you successfully weather any storms on the horizon?
The first step in creating your financial plans is understanding your long-term goals and motivations. Start by discussing and writing down your financial objectives. This draft of your vision plan is a great thing to go over with close family and friends for additional insights. Having multiple points of view will help you make clear and composed decisions when faced with dips in the market. After working through this draft with a financial advisor and creating an action plan that suits your long-term goals, you will be able to have peace of mind no matter the current economic climate. This map will help you resist the urge to make poor impulse decisions based on fear.
One vital aspect of beginning your financial plan is time. Securing your financial timeline will determine not only your strategy but will assist you in taking the long-term view if worry sets in when you see a dip in the market. For example, can you imagine a slump in the housing market making you feel the need to sell your home quickly? You would think about your home’s physical value and realize that the real estate world will regain any losses over the long run. Similarly, a volatile market is not a time for rash decisions (which will often lead to regretful outcomes). Even long-term investing requires careful research and fine-tuning. With so much conflicting advice, a key ingredient for success is a trusted financial advisor to help you navigate options and know how to plan for volatility. Taking the long view will ultimately help you achieve those long-term goals.
Another critical aspect to success during volatility is diversity. By having a diversified investment portfolio, you help to manage risk and take control of current opportunities. Down markets are a helpful time to connect with your financial advisor to take advantage of possible opportunities such as: using some losses to reduce a future tax bill, converting lower share prices to a Roth IRA, or adjusting your investment mix to take advantage of low prices. Unfortunately, without a financial crystal ball, timing the market’s ups and downs is impossible. Instead, make sure you stay diversified, know your risk tolerance, and stay the course with your plan during rough periods.
And finally, follow your own advice. Once you have created a plan for volatility, have faith in the preparations you have made. You and your financial advisor will successfully weather any fluctuations if you embrace the reality that markets continually change instead of trying to avoid downturns all together. Remember your long-term goals and your vision for your financial future. Your preparation will lead to success and stability, no matter the swirling currents around your ship.
1. Have a financial strategy with clear goals that plans for volatility
2. Remember your time horizon and diversify for success
3. Stick to your plan when rocky markets come
4. Follow your own advice
Justin Martin is a Senior Wealth Advisor for Legacy Wealth Management, with his office based in the Salt Lake City area. Justin works with small business owners and doctors throughout the United States and is passionate about helping individuals prepare for a robust financial future. Justin completed his Master of Business Administration (MBA) at Texas A&M University and completed his undergraduate studies at Brigham Young University. Justin is FINRA series 65 licensed, has been working as a Wealth Advisor since 2006, and is currently a board member with the International Association of Registered Financial Consultants. He also works as an adjunct professor of microeconomics and loves studying financial systems. Justin and his wife Megan have four kids and love all things active and musical.
This document is provided for educational purposes only. All investment strategies have the potential for profit or loss. No investment strategy can guarantee positive returns. The information contained in this document should neither be construed as a provision of personalized investment advice nor as a guarantee that a certain level of results will be achieved. Under no circumstances should this information be construed as an offer to sell or a solicitation of an offer to buy any particular service or product.