How To Be Prepared For A Bumpy Ride: A Volatility Primer

The last 10 years have brought American investors the longest bull run in history. When volatility  descends upon us once again,  here are some brief pointers on how to "remain calm and carry on."

Researching a client's history the other day, I came across an email response I sent her in October 2002. This was at the low point of the dot com crash, and she was among many nervous clients seeking guidance. After reviewing her age, situation, and portfolio allocations, this is what I wrote her:  "Unless you have an immediate need for money, I would recommend that you sit it out. History confirms that selling after a gigantic dip in the markets is a bad idea. Tech will rise again. However, as to the exact timing of the rebound, I am unable to give you any specifics."  The Dow was at 7286 then and is over 26,500 as of this writing. This advice, with a bit of added nuance, is as on point now as it was then.

Key Tips:

Keep perspective:  Downturns are normal and normally short-lived.

Don't try to time the market:  For long term success, this is a losing proposition.  After many years advising clients, I have seen those who sold out following drops miss out on the early part of ensuing rallies, and never gain back the ground that those who held on did.

Align your portfolio with your risk tolerance number, time horizon, and liquidity needs:  These factors can be calculated with a high level of precision and should guide your allocation decisions. You and your portfolio should be in sync!

Make sure your portfolio is rebalanced:  If you haven't rebalanced lately, now would be a great time.  This includes a review of your 401(k) assets as well, which should be considered as part of your overall portfolio allocation.

Invest regularly, despite volatility:  If you invest regularly over months, years, and decades, short-term downturns will not have much of an impact on your ultimate performance.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. Any economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk including loss of principal. Past performance does not guarantee future results.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.