What to do during a period of market volatility
What to do when the market experiences its down days has everything to do with how quickly you may need to access those investments. Individuals who are accumulating wealth should think opportunistically about market drops while individuals who are in or close to retirement should be focused on how to keep themselves from selling assets that are intended for long term growth during normal periodic loss cycles. After all, the best days in the market tend to follow the worst! Normally, it is YOUR BEHAVIOUR right now that will determine how your portfolio will perform for you overtime. This can be evidenced by the fact that the average return for an individual investor is much worse than the average return of every market index except inflation.
If you are more than 10 years from retirement and in the process of accumulating wealth, plan to increase your investing during downturns. Whether that is simply increasing the amount you invest bi-weekly into your 401k working with your financial advisor to get more into your investment accounts, both of these moves (as long as the dollars are invested in equities and not the cash account) will work to hopefully “buy low”; investing more dollars when the market prices have fallen.
If you are already in retirement; It is our practice at Artisan Financial group to keep 1-3 year’s worth of cash and cash equivalents in our client’s portfolios for days such as this. Portfolios are structured to consider:
Where will you get income from in the next 1-3 years?
Where can we attempt to eek out a little more growth (more than rates on cash) until the years 4-7 assets are needed?
Once we have accounted for how many dollars are needed to get through 7 years of portfolio withdrawals, those dollars are invested in a portfolio focused on long term growth.
This “bucket 3” is where the volatility is happening (quite on purpose) during a market downturn. This may be hard to witness when we see market volatility like we did at the end of December. But remember, these assets were never meant to be sold at the end of December. These assets are waiting for the return of good market conditions to be “harvested” at a gain.
The overall lesson here is DON’T PANIC. Your portfolio has been constructed to handle (and even take advantage of) both the ups and the downs.