Mastering Your Finances: 5 Essential Money Truisms for Financial Success Amid Market Volatility

investor achieving financial success during market volatility


As humans, it’s easy to react emotionally when money is involved.

Fear can cause us to ignore age-old truisms we’ve been hearing our whole lives. They’re embedded into everyday conversations, and if we’re not careful, we miss their wisdom.

When that happens, I’ve learned that financial regret and money mistakes are often not far behind.

Let’s take a look at five of these truisms about money and investing in the context of market volatility…

1. “If you fail to plan, you plan to fail.”

Planning is the backbone of what our firm offers. It’s even in the title of what many advisors do: financial planner.

That’s why evidence-based, extensive, and multilayered financial planning is one of the first initiatives we complete together with new clients.

We have a series of meetings and conversations to better understand everything about you: your goals, interests, personal and professional relationships, values, beliefs, and how you prefer we work together, among other key details.

This foundational work serves as a lens for how we can view your financial plan – and market volatility – together.

2. No Risk, No Reward.

The relationship between risk and reward deserves more attention. 

Every investor I’ve ever met carries a baseline of investing risk. Any investment in the stock market carries at least some risk.

Businesses fail. Industries change. Scandals erupt. Disruptions shake even titan-sized companies. However, often in the same industry or sector, other businesses are surging forward. 

Brilliant leaders make otherworldly advances in technology, medicine, communication, and production. Exposing your investments to market risk is essential for generating higher returns over time.

We trust evidence-based investing to guide our portfolio allocation practices. For our clients, we determine risk tolerance by balancing the need for future returns with their need for consistent retirement income and willingness to trust our wisdom through volatile times.

We build a measure of stock market exposure into a portfolio with specific allocations guided by individual goals and risk tolerances.

3. Don’t Put All Your Eggs in One Basket.

Nobel Prize-winning theorist Harry Markowitz’s work on the Modern Portfolio Theory focused on risk optimization through effective diversification. Harry, unfortunately, passed away earlier this year – at the age of 95 – but his wisdom lives on. 

Single-stock portfolio allocation is the financial equivalent of putting all your eggs into one basket. What if Tesla, Amazon, or Apple become the next Enron?

Diversification helps mitigate risk over time. Adding high-risk, high-reward investment choices into your portfolio is often best balanced with more ‘boring’ sources of expected returns.

Combining widely diverse sources of risk can lower your overall risk exposure or maintain similar levels of risk while improving overall expected returns.

4. Buy Low, Sell Higher.

Financial author Larry Swedroe studied performance persistence among six different sources of expected return with three model portfolios.

Swedroe discovered, “In each case, the longer the horizon, the lower the odds of underperformance.”

Having a low-cost, broadly diversified portfolio over time is necessary if you want to ‘sell higher’. If you want to sell higher than you bought, you must remain true to an evidence-based portfolio structure for years, if not decades.

For our clients, we typically ensure an appropriate portion is sheltered from market risks and relatively accessible (liquid). The riskier portion can then be left to ebb, flow and grow untouched over time.

Staying invested for years, if not decades, is a proven strategy for achieving notable returns on your investments.

Portfolio rebalancing is another strategy for selling higher. Investments will stray from their original allocations. By periodically selling some holdings that overshot their ideal allocation while buying underrepresented holdings, you can return the portfolio to your intended allocation.

5. Stay the Course.

One of the few guarantees my team and I can make to you as an investor is this: I guarantee volatility will always be in the market.

When tough market conditions arise, it doesn’t matter how ‘good’ your financial plan is if you don’t follow that plan through different market cycles.

Our rational self may know better, but our instincts, emotions, and behavioral biases get in the way.

Two particularly important biases to be aware of in volatile markets include recency bias and outcome bias.

Recency bias causes us to put more value on our latest experiences, and downplay the significance of long-term conditions.

Did your portfolio lose value in Q1? It’s tempting to believe you have the wrong asset allocation.

Did your portfolio gain tremendous value last year? It’s equally tempting to believe you’re a gifted and prescient investor.

Nobel laureate and behavioral economist Daniel Kahneman describes this phenomenon as “what you see is all there is” mistakes.

Recency bias causes droves of investors to chase trendy, high-priced holdings and then sell at the first sign of loss.

Outcome bias can blame poor market returns on the plan when it may be your portfolio is built to march out of sync with media headlines.

Do you abandon your carefully constructed financial plan based on what the headlines are saying? How are you intentionally refreshing your plan over time based on your evolving personal goals, emerging data, and new resources for optimizing your portfolio?

If the markets disappoint us over the next few years, do you trust the markets more or your financial plan?

If you’re not confident in your current financial plan or you don’t have a plan at all, our team is here to connect with you. Click here to schedule a complimentary initial call.


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