How to invest confidently in the midst of chaos
By Kevin Kennedy, Managing Director, Head of Individual Retirement
Every day, when I read through my news feed, I inevitably find a series of articles, blog posts, or tweets, describing a new fight or scandal in the political arena, a different company’s stock price taking a dive, or another economist predicting the next, big recession. It can be hard not to get caught up in the pandemonium and start panic-investing -- namely turning all of my assets into cash to put under my mattress.
While most of us understand that mattress-as-investment-account is not a good approach, it can be challenging to know how to react or what to do with your investments in the midst of chaos. In other words, what can you do to get a grip on your emotions and implement (or continue to follow) a solid investment strategy when everything in your being is saying “sell”?
Here are a few tips to help you get started on the right path:
- Talk to your financial advisor – If you don’t have one, you may want to get one. Surveys show that retirement plan participants who work with a financial advisor contribute more to their plan, save more money over time, and are more confident in their financial plans.1 So, not only do financial advisors help you prepare for retirement more effectively, they can make you feel better about what you’re doing too – i.e. less stressed.
- Look at it as an opportunity – The great philosopher Sun Tsu once said: “In the midst of chaos, there is also opportunity.” When political and economic factors cause the market to head south, there will be plenty of people who panic and sell their stocks or other investments. Instead of selling, you may look at a down market as an opportunity to invest at lower prices. Make sure you talk to your financial advisor first, since not every low price necessarily signals a good investment or an investment that’s appropriate or suitable for you.
- Diversify – A diversified portfolio can help you withstand some of the market ups and downs. That’s because not all investments will perform the same under the same circumstances. So, while diversification does not guarantee a profit or protection against loss, having a mix of investments can help you even out your portfolio. Your advisor can help you diversify your investments.
- Focus on your long-term plan – Short-term volatility will happen. The markets will go up and down periodically. It’s just part of what happens. Work with your financial advisor to choose a diversified portfolio of investments that are in line with your risk tolerance and your retirement time horizon. Then, every year or so, sit down with your advisor to rebalance your investment allocations and go over your strategy to make sure it still makes sense.
- Identify what’s stressing you – Talk to your financial professional about what is causing you stress and making you want to make sudden changes to your portfolio. If you’re struggling with debt and feeling like you need to cash in your retirement funds, your advisor may be able to make suggestions. Or, if the market is causing you stress, turn to your advisor for help in understanding and putting into perspective what’s going on as well as options that may help you address your concerns about your investments, even if the market isn’t performing well. If your risk tolerance has changed over time, talk about that too, because your advisor may propose that you to make some strategic (not reactionary) changes to your portfolio.
- Make sure you have an emergency fund – Knowing you have enough money set aside if something happens, like you get in an accident or lose your job, can help you stay calm and invest confidently. Most experts suggest you have enough savings to pay at least three months of expenses – including essential costs such as mortgage or rent, utilities, insurance, food, and transportation.
1 Source: Equitable Whitepaper: The Value of an Advisor