Keys to Weathering Market Volatility

We believe that an informed investor is an empowered investor. That’s why we’re committed to helping individuals make sense of market volatility and develop strategies to help navigate it with confidence. If you’re looking for guidance on how to navigate uncertain times and stay on track with your long-term financial goals, we invite you to connect with us. We’d be happy to have a conversation and explore how we can support you on your financial journey.

The recent turbulence in the stock market may be causing concern among novice investors, but experienced investors understand that what we have seen so far this year is not earth-shattering. For context, investors who lived through events like the Black Monday crash of 1987, the Dot-com bust in 2001, the global financial crisis of 2008, and the COVID-19 market downturn have gained valuable experience and a deeper understanding of equity market swings. Unfortunately, investors with limited experience may lack the perspective or the wisdom of those who have navigated the investment world for a longer period. Knowledge can help provide a general understanding of a topic, and expertise can offer a higher level of skill and proficiency.

In the competitive media industry, outlets often focus on sensational headlines to capture attention, sometimes amplifying investor anxiety in the process. During these confusing times, it is helpful to remember that volatility is a part of the investment experience, therefore, it is beneficial to understand or remind yourself how to embrace and manage times of investment turbulence. Volatility in equities, in simple terms, means price swings. The degree of variation of prices and the time period over which they occur determine the severity of the volatility. High volatility results in significant and rapid price changes, while low volatility leads to more stable and smaller price fluctuations. Typically, high volatility arises during uncertain times, such as the recent tariff proposals or the pandemic-driven crisis.

Strategy

One of the best ways to prepare for volatility is to understand your objectives and strategy. We believe that a long-term investment strategy is integral to successful financial planning. Focus on your long-term investment goals rather than reacting to short-term market movements. Historically, over longer periods of time, equity markets have recovered from downturns.

What NOT to Do!

Seasoned investors understand that volatility is a natural part of the investing journey and that bumps in the road can and will occur. Those who have experienced challenging periods of volatility in their investing journey know that there are a handful of strategies that can make these times more manageable, as well as pitfalls that can complicate the situation.

While most investors recognize the importance of time horizons and risk tolerance, they sometimes overlook a crucial factor: human emotion. Even the most experienced investors can be tempted to stray from their long-term plans and become caught up in the short-term fluctuations of the economic environment. Allowing panic and doubt to influence decision-making and worrying about aspects beyond one’s control can lead to rash and poorly considered choices. You are the best evaluator of how you react to potentially stressful situations. If you would like to discuss your financial concerns with us, we would welcome the opportunity to speak with you.

It can be very tempting to take money out of equities with the intention of reinvesting, “when the time is right.” However, attempting to time the market should not be a primary strategy. It is nearly impossible to determine when the perfect time is to get in and out of the market. Trying to time the market can prove to be highly risky, and many investors have missed out on significant gains by doing so.

Minimizing your exposure to the media during volatile times can prove to be healthy. Consuming excessive media during uncertain times can increase stress and anxiety. Media coverage can often exaggerate the situation, making it sound worse than it truly is. While you cannot control what the media is dishing out, you can control how much you intake and how you react to the information. Remember the saying, “perception is reality,” because the media has done a good job at skewing and sensationalizing facts, and many times, their main goal is to increase viewership. Refraining from too much media can help you stay calm during times of uncertainty. Ignoring the talking heads and staying focused on your long-term goals is typically the most productive path.

Seasoned investors know that trying to navigate investment decisions without consulting their financial professional can pose an unnecessary obstacle to achieving their financial goals. Seeking guidance during confusing times can help investors find the best path to success with their hard-earned money.

Common Pitfalls During Market Volatility

Being more concerned about short-term fluctuations than your long-term goals.
Allowing panic and doubt to control your actions and worrying about things you cannot control.
Trying to time the market.
Letting the media dictate how you perceive volatility.
Not collaborating with a financial professional.

Positive Actions Investors Can Take During Market Volatility

Understand and focus on your personal financial goals.
Have a long-term strategy.
Think big picture, not day-to-day.
Limit constantly checking your investments.
Avoid overexposure to the media.
Talk with us about your concerns.

Positive Actions

Maintaining focus on your personal financial goals should be your main priority. We strive to craft a diversified, long-term financial plan with clients that takes into consideration their time horizon and risk tolerance. We also try to help clients stay on track and avoid allowing temporary fluctuations in the markets to divert them from their long-term path. While this may sound easier said than done, practicing patience can help you become more resilient to volatility.

Constantly checking your investments, like every hour or even daily, can increase your anxiety. Please remember that investing for the long term is never a straight line, and being consumed by the daily ups and downs can lead to increased concern. A well-diversified portfolio can include stocks that can weather short-term volatility and still allow the potential for long-term gains.

As the great investor Warren Buffett said, “If you are not willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

Sometimes, the big picture can get lost when the weeds start to become the focus. If you would like to discuss your financial plan and review it to confirm it still conforms to your goals, please contact us, and we would be happy to explore this with you.

Opportunities During Market Downturns

Navigating turbulent times in financial markets can be difficult. They say if life gives you lemons, make lemonade – and there is a silver lining for investors and savers during market downturns.

Here are a few ways you could enhance your personal situation when equities take a dip. Our goal is to help you make sound financial decisions.

Add new money into your retirement or brokerage account. If you are in a financial situation that could allow you to make new investments, buying stocks during a market downturn can be a great way to potentially increase your long-term returns.

Rebalance your portfolio. When stock prices drop, they will account for less of your diversified portfolio if your investments in bonds have maintained their value or didn’t drop as much. Moving your portfolio allocations back to your desired amounts, or even increasing your allocation to stocks, can help set you up for potentially strong returns after the downturn passes.

Our goal is to help you make sound financial decisions. As always, please call us if you are interested in making any changes to your portfolio.

We Will Help You Stay Properly Informed

We are closely monitoring areas that may impact your financial situation. If you would like to review your financial holdings, rebalance your portfolio, or discuss any concerns or questions, please know that we are here to assist you.

We believe that an informed client is the best client. We will keep you updated on issues that may affect your financial situation. Additionally, please keep us informed of any changes in your circumstances, such as health issues, shifts in your retirement goals, or the sale of a home. The more we know about your unique situation, the better we can advise you.

A skilled financial professional can help simplify your journey toward achieving your goals. By understanding your needs and objectives, we can create a plan tailored to your situation. As always, we appreciate the opportunity to assist you with all your financial needs.

Tax Planning During Market Volatility

Navigating market volatility can be frustrating. The good news is that investors could possibly take advantage of potential strategic tax planning opportunities during these times.

Roth IRA Conversions – While this is a complex strategy that you should discuss with a financial professional before implementing, converting to a Roth IRA during a market downturn can potentially maximize tax-free growth in the future. By converting when the value of your traditional IRA is lower due to a market downturn, you will pay taxes on a smaller amount, and any subsequent market recovery will be tax-free within the Roth IRA.
Tax Loss Harvesting – Downturns can provide opportunities to “harvest” capital losses. Investments that are valued below their cost basis can be sold, and the losses taken can be used to offset capital gains. If losses exceed gains for the calendar year, up to $3,000 may be used to offset ordinary income, and unused balances can be carried forward to future years. Please note that you should talk with us or a tax professional about doing this because rules like you must wait 30 days to repurchase the security to avoid a “wash sale” need to be followed.
Gifting to Family Members at Reduced Prices – When equity prices are down, you can gift securities at lower values using less of your annual or lifetime gift tax exemption. Like the other items on this list, we recommend you coordinate these with us or a qualified professional to fully understand the rules and effects, but this strategy can prove to be effective during market downfalls.

Complimentary Financial Consultation

One of our goals this year is to help more people with their financial decisions.

If you are not a client of Financial Advisors Network, Inc., we would like to offer you a complimentary, private consultation at no cost or obligation.

Please call (714) 597-6510 for more information or to schedule your appointment.

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Financial Advisors Network, Inc. is a registered investment advisory firm. This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice, as individual situations will vary. For specific advice about your situation, please consult with a lawyer, tax, or financial professional. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Contents provided by the Academy of Preferred Financial Advisors, Inc.

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