Legendary investor Shelby M.C. Davis said, “History provides crucial insight regarding market crises: they are inevitable, painful, and ultimately surmountable.”
Although stock markets generally reward long-term investors, occasional bear markets are a normal but unpredictable trait of investing. How you react to volatile markets plays a crucial role in your long-term success. Here are a few steps to take when the market gets scary.
Talk with your financial advisor
If you are concerned about the current market conditions and your financial goals, set up time to review your investment strategy, risk tolerance, savings, and expenses with your financial advisor. If the highs and lows in your portfolio value seem too extreme, talk to your advisor about adjusting the investment mix to one that feels right and meets your goals. Just because the market has changed doesn’t necessarily mean your strategies or financial plan should.
Look beyond the headlines
When times get rough, it’s easy to get caught up in the moment-to-moment market gyrations and distracted by headlines. Instead, take the news with a grain of salt. Remember the media uses fear to sell subscriptions or attract an audience. Tuning out the headlines and everyday noise can limit your emotional response to downturns. Turn to your advisor to provide perspective and help make decisions based on data and evidence, not impulse.
Buy at lower prices
A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.
Warren Buffet
Depending on your personal situation, you might consider adding to your investments while prices are lower. If you want to take advantage of buying low but are uncomfortable with leaping in all at once, consider dollar-cost-averaging, a method of regularly investing smaller dollar amounts over time.
Gain confidence from the past
Over the long-term, the stock market has recovered again and again from disruptive, but ultimately short-term, worries. Since the early 1900s, markets have trended upward through two major secular bear markets — the Great Depression and the 1970s — and more cyclical bear markets, such as the dotcom crash in 2000, the 2008 subprime mortgage crisis, and the 2020 pandemic. A disciplined investor looks beyond the concerns of today to the long-term growth potential of markets.
Avoid buying high and selling low
During times like these, short-term fixes — like selling your investments — may seem a tempting and easy solution. Yet selling does nothing more than lock in the loss and prevent you from profiting from any subsequent gains. Gains often occur during a few strong but unpredictable trading days. Benefiting from those days requires you to have the courage to stay invested for the long term.
Have a plan for investing through market fluctuations
Volatility is unlikely to derail a well-designed financial plan. Investors, therefore, need a plan for riding out choppy markets instead of reacting emotionally. A prudent financial plan accounts for periods of market decline and seeks to keep you on track towards achieving your goals in good markets and bad.
Signet can be your best resource when it comes to navigating bear markets
Although you can’t control when market declines occur or how long they last, you can lean on your advisor to control how you handle the situation. These actions can significantly affect your investment success over the long term.
To learn how we help investors navigate bear markets, please contact your Signet advisor, or Steve Tuttle directly at +1 800-390-2755 or stuttle@signetfm.com.
