“There are a lot of headwinds,” said Craig Ferrantino, founder of Craig James Financial Services in Melville, New York. “Some of them are temporary, but some of them could take a long time to go away. There’s a lot of economic uncertainty.”
Market volatility can be a good thing for medium-dollar, long-term investors — meaning they contribute steadily to their investment accounts over time — as it allows them to hedge their risk buying stocks on both highs and lows, smoothing returns.
But recent market performance has some investors worried about a potential correction, in which the market would fall 10% or more from recent highs.
“For the average retirement investor who doesn’t have an advisor reminding them during up cycles that there’s going to be a correction, this can be a scary time,” said Deborah Meyer, certified financial planner and CEO of WorthyNest. . “This is especially true for you millennials who have never experienced a stock market crash before.”
If you’re worried about your investments, take a deep breath, then follow these steps:
1. Withdraw the money you need in the short term from the market
Experts advise against keeping the money you’ll need for the next five years (or sooner) entirely out of the stock market and transferring it to safer investments like a high-yield savings account or a Money Market. This includes your emergency fund, as well as money you’ve set aside for short-term goals like a down payment on a house, renovations, or a wedding.
If you are retired or nearing retirement and plan to dip into your wallet for current expenses, consider withdrawing up to two years of stock market expenses.
“As long as you know your cash needs are being met, you can let your portfolio do its thing and you’ll weather any potential recession,” said Nancy Hetrick, founder and CEO of Smarter Financial Solutions.
2. Stick to your longer-term investment plan
For longer-term investments, remember why you’re saving. If you’re putting money aside for a retirement decades away, say, or for your toddler’s college tuition, you have plenty of time for your investments to recover from a downturn or even a downturn. ‘a correction.
The reason most advisors recommend that long-term investors keep most of their money in a diversified portfolio with a heavy equity allocation is that volatility and short-term risk allow for higher returns over time. time. But you need to determine which allocation is best for you based on your time horizon and personal risk tolerance.
“Even the biggest companies can’t time the market in the short term,” said Anthony Mezzasalma, Certified Financial Planner at Mezzasalma Advisors. “The way around that is to have a plan and make sure the money we’re taking risks with is invested for the long term.”
Having a pre-determined asset allocation (and determining what circumstances would warrant you making changes to it) helps you avoid making emotional decisions about your investments when volatility hits. The longer you can stay invested in the market, the more time you will have for your investment gains to accumulate, negating the impact of daily market movements.
3. Make sure you have realistic expectations
It’s easy to forget that historically, annual returns hover closer to 10% and bear markets (pulls of 20% or more) hit on average once every two or three years. This means that it is unrealistic to expect your investments to continue performing as they have for the past three years.
“Even though you know volatility is normal, it can be a very visceral experience when we watch our wealth disappear,” said Donald Calcagni, chief investment officer at Mercer Advisors. “But it comes down to having a plan and sticking to it.”