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Coping With Market Volatility in Uncertain Times

Coping With Market Volatility in Uncertain Times

May 20, 2020
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As the United States desperately tries to flatten the contagion curve for the coronavirus, many state governors have mandated the closure of an unprecedented number of businesses and issued stay-at-home orders to their citizens. The global pandemic is wreaking havoc with the markets and causing concern among many investors. Dealing with market volatility during uncertain times can be stressful, and these tips may help. 

1. Focus on What You Can Control
During times of economic uncertainty, you may be worried about your investments, your business, your job, or other financial issues. For the most part, you have limited control over these elements, and focusing on financial parts of your life that you can control may help to alleviate your stress. Consider doing the following:

  • Follow a spending plan. 
  • Reduce unnecessary spending.
  • Pay down debts if possible.
  • Refinance your home into a fixed rate while interest rates are at historic lows.
  • Reduce credit card expenses.
  • Build up an emergency savings account. 
  • Keep a non-retirement account that is conservatively invested as a back-up to your emergency savings account. This account allows you to leave your other investments intact for spending needs so you don’t need to draw down from your account that is invested in equities.

2. Rebalancing Investments
When you're watching the markets fall, selling all your investments can be tempting, and depending on the nature of certain investments, It may make sense to sell some of them and reallocate for the current environment. However, moving to cash with all of your investments rarely makes sense because you have to also make the decision when to get back into the market. Because the markets tend to move quickly, most people miss the upside of the markets when they move to cash.

Over the last 90 years, the S&P 500 has posted an average annualized return of 9.8%. However, this growth is almost never steady. Between 1928 and 2016, only six years showed between 5 and 10% growth. In contrast, over 20 years had more than 20% growth, and of course, many years saw substantial drops. 
During times that the markets drop, your equity exposure can drop below your target risk allocation. That translates into cautiously increasing equity exposure back to your target risk level. Taking a disciplined approach to rebalancing both when the markets go up and when they go down makes for a better long-term strategy than not rebalancing at all.

Your portfolio should be set up to handle a certain amount of risk within your comfort zone. As you get closer to retirement or change your long-term goals, you also need to rebalance your portfolio as your risk tolerance decreases. 
3. Consider Avoiding Excessive Economic News
As indicated above, the daily ups and downs of the market do not affect the overall growth potential of your investments. But economic news can be stressful. If you're feeling a lot of anxiety, you may want to limit your exposure to hourly economic news. 

Consider choosing a few news sources that you enjoy and sticking to a time limit. Then, you can stay informed, but you don't have to worry as much about succumbing to stress.
4. Explore Strategies for Coping with Anxiety
Uncertainty about the markets and the economy can produce a lot of anxiety, and you may want to explore strategies to help you cope with these feelings. Exercise, yoga, meditation, and relaxation techniques may help. 

Due to the increasing number of people who are choosing or mandated to stay home, many of these services are now available online. Consider downloading a breathing application like Breathing Zone, connecting with a counselor over the phone, or watching a yoga livestream.
5. Avoid Making Decisions Based on Fear or Stress
Keep in mind that fear and stress can cloud your decision-making process. As you make financial decisions during uncertain times, try to step back and make sure your decisions aren't driven by your emotions. You may want to consult with a financial advisor to get an unbiased opinion about the right decisions during this difficult time. 
If you would like a second opinion on your wealth management or financial planning, give us a call at 949.748.1177.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.