Best (and worst) financial strategies during market volatility


Hi, it’s your Money Mavens, and yes, the stock market can feel like a rollercoaster at times.

Between non-stop news, rising inflation, and whatever’s happening in Washington, it’s natural to wonder, “What do I do?!”

How you respond, the choices you make, even the mindset you take through this level of volatility have a dynamic impact on how well you weather this period of time.

So, what are the best actions you can take in your financial life during periods of uncertainty like this?

On the other hand, what do you not want to do that many investors often do during these times that creates more headaches in the future?

We put together a quick list of the most (and least) effective ways to approach investing while the market makes big swooping loops and sudden drops…

1. A Best Practice: Stay the Course

Our clients know their best investment habits are the same ones we’ve been advising all along.

If you aren’t a client of ours yet, we’re referring to having a low-cost, globally diversified investment portfolio with money earmarked for future spending.

Structure it to represent your best shot at achieving your financial goals by maintaining an appropriate balance between risks and expected returns.

Stick with it, in good times and especially during bad times.

2. A Top Time-Waster: Market-Timing and Stock-Picking

Why have stock markets been ratcheting upward during socio economic turmoil?

Market theory provides several rational explanations. Mostly, market prices continuously reset according to “What’s next?” expectations, while the economy is all about “What now?” realities.

If you’re trying to keep up with the market’s manic moves… stop. You’re wasting your time.

3. A Best Practice: Revisit Your Rainy-Day Fund.

How is your rainy-day fund doing? You may call this your Emergency fund or as we prefer to call it your Curveball Account (for when life throws you a curveball that you weren’t expecting).

Right now, you may realize how helpful it is to have this fund or how unnerving it is to not have enough.

Use this top-of-mind time to establish a disciplined process for replenishing or adding to your Curveball account.

Set up an automated payment into this savings account, such as a monthly direct deposit from your paycheck into your cash reserves.

4. A Top Time-Waster: Stretching for Yield.

Instead of focusing on establishing adequate cash reserves, some investors try shifting their ‘safety net’ positions to holdings that promise higher yields for similar levels of risk.

Unfortunately, this strategy ignores the overwhelming evidence that risk and expected return are closely related.

Stretching for extra yield out of your stable holdings inevitably makes them riskier than intended for their role.

As with many opportunities in life, whenever you hear someone focus almost exclusively on the returns without considering any risks, that’s a red flag.

5. A Best Practice: Evidence-Based Portfolio Management

When it comes to investing, we suggest focusing your energy on harnessing the evidence-based strategies most likely to deliver the returns you want, while also minimizing risk.

What does that look like? A few examples may be:

  • Creating a mix of stock and bond asset classes that makes sense for you.
  • Periodically rebalancing your prescribed mix (or “asset allocation”) to keep it on target.
  • Adjusting your allocations if your personal goals have changed.

It also likely includes structuring your portfolio for tax efficiency and identifying ideal holdings for achieving all of the above.

6. A Top Time-Waster: Playing the Market

Some individuals insist on approaching investing as a type of ‘get rich quick’ scheme with active bets and speculative ventures.

Younger, do-it-yourself investors are showing increased interest in opportunistic day-trading, and alternatives such as active bets and speculative ventures.

However, the evidence suggests you’re better off patiently participating in efficient markets using the approach we described above instead of trying to ‘beat the market’ through risky, concentrated bets.

Over time, ‘playing the market’ is a losing strategy – and your financial future matters too much to treat stocks like a roulette wheel.

7. A Best Practice: Plenty of Personalized Financial Planning.

There is never a bad time to tend to your personal wealth, but it can be especially important – and comforting – when life throws you for a loop.

Focus on strengthening your own financial well-being instead of fixating on what may be outside your control.

We continue supporting clients with their portfolio management, retirement planning, tax-planning, stock options, business successions, estate plans and beneficiary designations, insurance coverage, college savings plans, and more.

With our in-house expertise, your financial planning can be as customized as needed to help you pursue your financial goals.

8. A Top Time-Waster: Fleeing the Market.

On the flip side of younger investors ‘playing the market’, retirees (and those approaching retirement) may be tempted to abandon it altogether.

This move carries its own risks. If you planned on augmenting your retirement income with inflation-busting market returns, the best way to expect earnings is to stick to your plan.

It’s tempting though to wonder, “What if we get out of the market until the coast seems clear?”

Unfortunately, many of the market’s best returns happen when they’re least expected.

This year’s rallies amidst gloomy economic news illustrates the point well.

Not to mention the possibility of an unnecessary tax bill because you sold out of certain investments.

In many cases, sticking with your written personalized financial plan is often the best strategy when the markets take a tumble.

There’s a question that may be lingering in your mind right now…

“What if I don’t know what the plan is?”

That’s why you’re reading this: you want confidence to know you’re prepared for whatever may shake the markets tomorrow, next month, or even ten years from now.

If you’re not sure if you’re prepared, that’s where our team can help you gain more confidence.

Click here to schedule a 20 minute complimentary initial call with one of our team members and take the first step in designing your plan to grow and protect your wealth.

To your prosperity,
Your HWM Money Mavens


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