Keep a Steady Hand on the Tiller

Uncertainty surrounding Russia’s ongoing invasion of Ukraine has combined with historically high inflation in the U.S., rising interest rates and pandemic related supply chain bottlenecks to bring volatility back to the stock market after a long hiatus. It would appear that daily, multiple percentage point swings in stock prices may be the norm, at least for a while. While periods of volatility are normal and even necessary for the stock market, let’s be honest: experiencing daily gyrations in the value of our investment portfolio can be challenging for all of us.

During times like these we tend to want to take some sort of action.  Often it takes the form of an inclination to sell some or all the stock in our portfolio with the hope of buying it back at a cheaper price or after the outlook improves.  Sounds simple enough, but history and academic research have shown that timing the market is next to impossible and is almost always a bad idea.  The fact is that no matter how much we worry over the current issues, we won’t come up with answers that will help us make sensible investment decisions.  So, what should we do if the current level of stock market uncertainty has us feeling uneasy? Are there actions we can take that might calm our nerves and also improve our financial situation?  Certainly, and here are some suggestions…

  • Be mindful of the headlines. They are designed to grab our attention and solicit a reaction. It’s true, there are a lot of important things going on in the world right now and we should all pay attention, stay prudently informed and help where we can. However, in doing so, it can be easy to get caught up in the scary headlines generated by the financial media.  “The Dow Plunges 300 Points” sounds a lot scarier than “The Dow is Down 0.7%”, even though they both say the same thing. These days, with the proliferation of cell phones and social media, it’s much more difficult to stay informed but not fearful.  Do your best.  Maybe delete the financial news apps from your phone as a starter.
  • Look at your account balance less often. Maybe try for once a month versus once a week, or once a week versus multiple times per day.
  • Remember that your portfolio is probably less volatile than “the Dow,” which consists of only 30 stocks and no bonds.  It would be more helpful if CNBC would report the financial news based on a 60% stock/40% bond portfolio. It would generate fewer headlines but it’s closer to how many people are invested. The Dow and S&P 500 are currently about 8% off their highs, but a typical 60%/40% investment portfolio might be down perhaps 5.5%.
  • Rebalance your portfolio. Considering the run-up the stock market has experienced over the last several years, there’s a good chance that stocks make up a larger percentage of your portfolio than you intended. Selling some of your stocks to bring your portfolio back to its intended allocation will ensure that you’re not exposing yourself to more risk than is necessary.  Plus, it’s a natural way to buy low and sell high and take advantage of drops in the market.
  • Make a plan to put cash to work. Warren Buffett once said that as an investor, it is wise to be “fearful when others are greedy and greedy when others are fearful.”  If you have a chunk of cash you’ve been waiting to invest perhaps now would be a good time to consider doing so.  If this seems daunting to you, it might make it easier to stomach if you systematically stage your cash into the market over a period of time.   For the record, this is not investment advice.  Please consult with your financial advisor before undertaking such a plan.
  • Have a financial plan and investment strategy and stick with it. Odds are the current market volatility hasn’t changed the long-term probability of accomplishing your dreams and goals.
  • Remember the wisdom of Ben Graham, the father of fundamental investing. “In the short run, the market is a voting machine but in the long run it is a weighing machine.” Click here to read more on the topic.
  • Remind yourself that short-term outcomes are not the same as long-term success.

Of course, these suggestions only apply if you’ve done the work ahead of time to ensure that your portfolio is invested wisely and that you’re taking the proper amount of risk. If that’s not the case, now would be a good time to review your strategy. If you’re a Beacon client, you can be sure that we will continue to stay informed for you and alert you to any necessary changes to your plan or portfolio.  In the meantime, please let us know if you’d like to have a conversation about how times of potential market volatility might impact your portfolio.

Geoff Hall, CFP®
[email protected]

My wife, Crystal, and I have been married for 11 years and have two kids, Cooper (10) and Rhodes (8.) When I’m not spending time with them you might find me downtown serving at our church, pushing my limits during a mountain bike ride or having coffee with a friend in the Five Points area. I've been a financial advisor for 29 years and I'm thankful for the privilege of shepherding my family of clients through the ups and down of the markets, and of life for that matter.