When financial market volatility erupts, investors are always in search of their own illusion of control. We crave predictability and control when it comes to our money, but investment markets provide neither.
When shares are rising, investing is often boring, methodical and the opposite of newsworthy. When shares are falling, investing is often exciting fast, and scary.
Investors often look to find some modicum of control through the answers of gurus. We just want someone to tell us what’s going to happen next so we can either buy or sell to relieve the fear and anxiety.
In all my many years of doing this, I’ve never come across a single person who has all of the answers. The reason is because that person doesn’t exist.
When shares go down in a big way, I find it’s more helpful to seek out the right questions as opposed to trying to find all of the answers.
Here are some questions you can ask yourself when trying to work through how to handle stock market volatility:
- If I sell my shares now what is the plan for getting back in?
- Has my time horizon, risk profile or circumstances meaningfully changed enough to warrant a portfolio change?
- Will my lifestyle be impacted in a meaningful way if shares continue to fall in the shorter term?
- Did I build my portfolio with the understanding that shares can and will fall on occasion?
- Have I overestimated my appetite for growth assets?
- Do I need to use the money I have invested in shares for spending purposes in the next 3-5 years?
- Does my portfolio match my willingness, need, and ability to take risk?
- Do I fully understand the potential range of outcomes when investing in shares?
- Is my portfolio durable and diversified enough to withstand severe dislocations in financial markets?
- Does my investment strategy fit with my personality?
- How did I react to market carnage in the past?
- How much volatility am I willing to accept in order to earn higher expected returns over time?
- What are my core investment beliefs?
- What do I own and why do I own it?
- What will cause me to buy or sell securities, funds, or asset classes in my portfolio?
There are no right or wrong answers here because it all depends on your circumstances.
These questions work in every market environment but more so when volatility rears its ugly head because that’s when we want to take the wheel to make something happen to give us the illusion of control. Most of this stuff boils down to having a comprehensive financial plan in place along with an experienced adviser to guide your actions and set realistic expectations.
But the act of creating a financial plan is the easy part. The hard part is implementing that plan during periods of heightened stress in the financial markets or your own personal life.
Even the most rock-solid financial plans won’t give you the same illusion of control as your favourite talking head who pretends to know what’s going to happen next in the share market.
What happens next in the market is completely out of our hands which is why the most important reason for engaging an adviser and creating a financial plan is that it forces you to focus on what you can control.
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Our clients’ financial well-being is our number one objective. We continue to work hard behind the scenes to monitor this unfolding situation. If you have any questions about your specific situation, please contact us. We are here to help.
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