Staying Calm During the Market Storm: 5 Things You Can Do Now
Dear Readers: The widespread impact of the novel coronavirus has everyone on edge. And while the health and safety of our families and communities is the top concern, I've been hearing from many of you who are taken aback by the resulting market turmoil, and the speed and breadth of the decline.
Seeing your portfolio balance drop overnight is worrisome for any investor, especially for newer investors who have only seen the market rise, and for older investors who are near or in retirement. But before you panic, remind yourself that shock and surprise are hallmarks of the stock market. How long will this last? Will things get much worse before they turn around? What's next? No one knows for sure, but there are positive things you can do to keep your investments on track and help you stay cool, calm and collected.
1. Stick to your plan.
The urge to do something -- anything -- can be overwhelming. The problem is you often wind up making things worse, either by selling too low immediately after a market downturn and missing out on future gains, or by chasing performance after markets take off. Often, the best strategy is to do nothing. This is where having a plan really pays off.
A plan reminds you of why you're investing and goals that are important to you. A good financial plan is also strategic but not written in stone. As your goals and situation change, your strategy evolves. Modern financial plans often use advanced computer simulations to allow you to evaluate probabilities of different "what if" scenarios including the impact of stock market corrections and other life changes on your goals.
Don't have a plan? It's not too late. You can create one on your own, or better yet, contact an advisor to review your situation.
2. Keep things in perspective.
Even with the recent declines, investors are still up from the bottom of the great financial crisis in March 2009. Keep in mind that the higher the market, the smaller percentage a large point drop represents. How much a drop in the market will impact you depends on your overall investment allocation and where you are in relation to your financial goals.
Remind yourself of your long-term goals. Not looking at your portfolio too frequently can actually help. While you may be able to look at your investments at any time, it's often a good idea to match your "look interval" with your investment time horizon.
To put this another way, if you're trying to lose 20 pounds in a year, weighing yourself every hour -- in grams -- is counterproductive and frustrating. If you have a balanced portfolio that is lined up with your risk tolerance and time horizon, looking at your retirement account daily isn't necessary and can cause unneeded stress. For most people, quarterly or annual reviews should be sufficient.