5 Things to Do While Markets Are Volatile

Experience and evidence alike show us how severely bear markets test investor resolve, sabotage otherwise solid plans, and just plain hurt. I have also seen how damaging it can be to act on rash fear rather than rational resolve during market downturns. Certified Financial Planner and author of “The Behavior Gap” Carl Richards explained how “we’d never buy a shirt for full price then be O.K. returning it in exchange for the sale price. ‘Scary’ markets convince people this unequal exchange makes sense.”

Just as we prepare for other emergencies, it is important to practice how to avoid disastrous investment blunders in the heat of the moment as well. Below are five timely actions you can take when financial markets are in turmoil … and, frankly, even when they’re not.

1. Don’t panic. It’s easy to believe you’re immune from panic when the financial sun is shining, but it’s hard to avoid indulging in it during a crisis. If you’re entertaining seemingly logical excuses to bail out during a steep or sustained market downturn, remember: It’s highly likely your behavioral biases are doing the talking. Even if you only pretend to be calm, that’s fine, as long as it prevents you from acting on your fears.

2. Remember the evidence. One way to ignore your self-doubts during market crises is to heed what decades of practical and academic evidence have taught us about investing: Capital markets’ long-term trajectories have been upward. Thus, if you sell when markets are down, you’re far more likely to lock in permanent losses than come out ahead.

3. Manage your exposure to breaking news. There’s a difference between following current events versus fixating on them. In today’s multitasking, multimedia world, it’s easier than ever to be inundated by late-breaking news. When you become stuck in the minutiae, it’s hard to retain your long-term perspective.

4. Reconsider your risk tolerance. When you craft a personalized investment portfolio, you also commit to accepting a measure of market risk in exchange for those expected market returns. Unfortunately, during quiet times, it’s easy to overestimate how much risk you can stomach. If you discover you’re miserable to the point of breaking during even modest market declines, you may need tore-think your investment plans. Start planning for prudent portfolio adjustments, preferably working with an objective advisor to help you implement them thoughtfully over time.  

5. Tax-loss harvest. Depending on market conditions as well as your own circumstances, you may be able to use tax-loss harvesting to turn financial lemons into lemonade during market downturns. A successful tax-loss harvest lowers your tax bill without substantially altering or impacting your long-term investment outcomes. This action is not without its tricks and traps, however, so it’s best done in alliance with a financial professional who is well-versed in navigating the challenges involved.

No matter how logical it may be to sit on your hands during market downturns, instinct can trick you into acting anyway. It’s important to review your investment and financial plan with your financial advisor on a regular basis to see if any adjustments need to be made. Making financial decisions based on evidence and understanding helps make sure you stay on track to achieve your long-term goals

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_{Disclosures:
The opinions expressed herein are those of Grand Wealth Management and are subject to change without notice. This material is not financial advice or an offer to sell any product. Grand Wealth Management is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Grand Wealth Management's investment advisory services can be found in its Form ADV Part 2, which is located below.}