Three Options for Market Volatility

Benjamin Haas |

I’m not a perfectionist. But I certainly do try to get things right the first time. So it’s upsetting when things don’t work out like they were planned. The key for me is to focus on progress, not perfection. There is little sense in wallowing over something that didn’t work out. Rather, find a way to overcome the problem by fixing it and come up with another plan for how to move forward.

Equity investments don’t feel like they are working right now. There are a host of explanations out there; oil, China, the Fed, etc. Regardless of what you believe or follow, fear is evident in our markets, which makes all investors susceptible to an uncomfortable environment. Even the “pros” pick losing investments.

I choose to believe though that there are only three ways to handle an environment like this.

First, you can liquidate your investments and go to cash. You believe the worst is still ahead, so you want out. But ultimately, you are just converting paper losses into real losses. I think this can be dangerous for long-term investors, as most all my clients are. As history has shown time and time again, volatility is a part of investing and moving to cash eliminates the opportunity to participate in potential gains in the future. Especially in recent history, sharp declines have been followed by meaningful recoveries. As difficult as it may be to stay invested during periods of heightened volatility, selling now only realizes losses.

Second, you can hold onto your investments. Ask yourself; does the underlying investment thesis still make sense? I think the easiest and most rationale way to answer this question is to examine the investment as if you don’t currently own it. Would you buy it today with new money? Do you like the price based on your belief of what it’s worth? If the answer is yes, you’ve eliminated the idea of selling it. I believe being disciplined means sticking to valuations you made at a less stressful time.  

Third, if you are really convicted with your selection, buy more at the new discounted price. That’s right, when prices drop, there are plenty that will suggest that owning more may be a solution. (Be careful to avoid becoming over-concentrated in this or any other position however). Stock markets sometimes seem like the only markets in the world that don’t get flooded with shoppers when everything goes on sale. I believe Warren Buffet said it best when he suggested that investors should be fearful when other investors are greedy and greedy when everyone else is fearful.

Finally, think about your financial plan. Plans are put in place to help direct us when our lives, our economies, or our markets change. Don’t throw out the good work you already did. Keep the main thing the main thing.

  • Are you still saving for your future goals? If so, remember that market corrections are a normal part of investing and might be presenting new opportunities.
  • Are you relying on your savings for income? If so, the main thing is the income your investments pay you, more than the value of those investments. 

It’s progress not perfection. Fix what you can but stay disciplined. As always, we are here to help talk through your options and emotions.