A Roadmap for Volatile Markets
By: Cameron Diehl, CFP®
Friends – Over the past three months we’ve experienced one of the most significant bouts of market volatility since the financial crisis more than 10 years ago, only to see it accelerate as we head toward the new year.
The reasons tied to the recent pullback have varied with the news cycle – market valuations, rising interest rates, trade with China, political uncertainties – or any number of other recent headlines. And where we go from here remains uncertain. Predicting short or even intermediate-term movement in the stock market can be extremely difficult. On one hand the overall economy and corporate earnings appear to remain in pretty good shape, but with so much uncertainty and negative momentum, it would not be surprising to see continued volatility in the coming months.
Times like this can be unnerving and all of the short-term noise can cause concern among even the most long-term investors. So how do we filter through it all and make sense of where we are? And what can we do during times like this to help ensure we stay on track?
Below is a roadmap of steps to take as we head into the new year designed to help ensure you’re positioned appropriately for your goals and able to take advantage of opportunities as they arise.
- Focus on your goals – Sound financial planning should be based around your goals – where you are now, where you are trying to get to and whether you are on track to make it. Your plan should give you complete clarity about whether you’re on track and rarely should short-term market fluctuations significantly impact that likelihood. If you don’t currently have this level of clarity, working with someone to develop a plan is an important first step in the process.
- Asses your timing – Most of us have a number of both short and long-term goals. And your investments for each should be allocated accordingly. For goals many years down the road, you may be able to afford a bit more risk in your investments when you have time to weather bouts of stock market volatility. For any near term goals, you should favor cash or very stable investments. If your portfolio and timeline are currently out of alignment, you may want to make adjustments to avoid further stress.
- Re-affirm your risk tolerance – Many investors overestimate their comfort level when it comes to market volatility – especially when markets have consistently risen as they have over the past nearly 10 years. Times like this provide an all-too-real reminder that markets go up and down over time. Your investments should be positioned to help you reach your goals without taking on unnecessary levels of risk. Again, if you feel your portfolio and risk tolerance are out of sync, you may want to consider adjustments.
- Manage cash – Maintaining a cash reserve can provide more than just an emergency fund. Cash on hand can provide comfort during times of volatility and liquidity to take advantage of potential investment opportunities when valuations may become significantly depressed, as they have recently. Also, now may be a good time to revisit how you’re holding your cash. As short-term interest rates have continued to rise, opportunities have increased to earn a higher interest rate on deposits after nearly a decade of close to 0% interest rates.
- Find opportunities – During times of volatility, there are always opportunities to find silver linings. There are a number of things you may want to consider now such as completing tax-loss harvesting, increasing contributions to any of your long-term tax-advantaged accounts (401(k)s, IRAs, HSAs, 529s, etc.), strategically rebalancing your portfolio, or considering a Roth conversion, to name a few.
- Seek trusted advice – Stress and emotions can cloud the judgment of even the most level-headed among us. Having an objective source of advice to help you navigate times like this can be extremely helpful – even if it’s just to get a second opinion and added reassurance.
If you would like to discuss any of the points above or recent market volatility in general, please don’t hesitate to reach out at any time. Some of these opportunities are extremely time sensitive between now and the end of the year and I’m always happy to find time for a conversation.
Disclosure: The information contained in this material does not purport to be a complete description of the securities, markets, or developments referred to in this material, and does not constitute a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Cameron Diehl, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
