Things You Should Do In a Volatile Market
By Preston Rosamond
When headlines start popping up about viruses, market crashes, and other world events, it’s normal to start asking questions like, “Am I going to be all right?” and “How will this affect me?” In asking these questions, financial security is one of the most significant factors we think of, right?
While these events are not to be minimized, we can take comfort in being educated about what’s actually happening, not what the news is portraying. Here are 4 things you should do in times of market uncertainty and volatility.
1. Don’t React, Do Research
This concept applies in many areas of life, but it’s extremely valuable to remember when it comes to making any hasty changes to your financial plan. News outlets want to catch your attention, which means they are prone to exaggerate information or possibly not include comparisons that would provide clarity to what that information means. We understand it’s a little frustrating.
Here’s an example of a comparison that provides some context to how things can seem much worse than they really are. The stock market dropped 7% on March 9th, 2020, which was the largest drop in over a decade. (1) But something that was not mentioned is that the stock market prices went to the same value as they were on June 3rd, 2019. (2) Was anything important or scary happening in June? Nope. It was just market fluctuation on that day.
2. Consider Long-Term Results
Now that we have been reminded to do a little research instead of making a desperate move to potentially save our money, let’s expand on that last paragraph.
Let’s use an analogy to think of the way the stock market and our investments behave. People’s moods can fluctuate on a day-to-day basis and so can the stock market. However, if you look at the person’s personality over a long period of time, their moods average out and usually improve with maturity. This probably doesn’t apply to everyone you know, but stay with me! In the same way, there is stability in the stock market over a long period of time. The value of your investments also grow and mature with time, even with short-term ups and downs.
Here is a graph that shows this long-term stability, despite short-term market fluctuations. This is the Dow Jones Industrial Average (DJIA) over the last 30 years of how much investments are worth, which is a fair representation of the market as a whole if you are an average investor.
If you remember the 2008/2009 crash, as seen above, the market recovered really well. The market always recovers, and it will continue to do so.
3. Leave Your Money Alone
So if we take the information we know from the above two points, what’s going to happen if we ride out the waves of the stock market going up and down and keep investing consistently? We will be wealthy, financially secure and not phased by future downturns.
When the stock markets go down, you can think of it like a real Black Friday Sale or Cyber Monday Sale, where stocks and mutual funds are on sale and you’re getting the best deal on your money. However, if you choose to sell back your funds, or sticking with our example, return a previous purchase you bought for full price, you will get a fraction of your money back. You’ll lose money.
If you consistently invest and don’t take any money out until retirement, you have nothing to be concerned about. Don’t become frantic and start selling back everything you bought for a much higher price. Let it grow and mature.
4. Talk To A Professional About Risk
You can do all the research you want, but ultimately it’s extremely beneficial to talk with someone who researches this information on a daily basis and who can help answer concerns specific to your situation and phase of life.
Depending on your age and financial situation, you might not feel like you have as much time to let the market bounce back. This is why it is even more crucial to make sure the types of investments you have make sense considering your risk level. Lower-risk funds don’t go up and down as much as some other more aggressive-growth funds. This is something to discuss with a financial planner to make sure your investments are where they should be and are ready for future market swings.
Are you ready to see all your options for protecting your money and setting it up to succeed in any market environment? At The Rosamond Financial Group, we would love to start that conversation and answer your questions. Please call 830-798-9400 or email us at smrosamond@rosamondfinancialgroup.com to schedule a consultation.
About Preston
Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with nearly two decades of industry experience. He provides comprehensive wealth management and financial services to individuals, professionals, and families who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch and a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing smrosamond@rosamondfinancialgroup.com or schedule a call with our online calendar.
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(2) https://www.macrotrends.net/1358/dow-jones-industrial-average-last-10-years
(3) https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart