There are times when waiting seems easier than action, like saving for the future.
There are times when action seems easier than waiting, like selling out of a declining stock market.
Unfortunately, those instincts are reversed.
Here are eight strategies to use during volatile markets when your instinct is to act but the advice is to do nothing.
1. Review your commitments. What are the things in your life that you want to improve? It could be anything from socializing to making more money to organizing a kitchen drawer. Shift your focus to taking daily steps toward your commitments.
2. Imagine shopping at a store during a sale. Stock prices are discounted, even for well-established companies with strong long-term profitability. Investments that lose value because of poor quality and those that lose value because of market declines are two different things. Investing new money during market lows can be a valuable strategy.
3. Create a new habit. If you routinely check the news or your account balance, break those habits by replacing them with something else. For example, if you have a stock market app on your device, delete it and put a different app in its place. If you check the news at a certain time, set a timer to stretch for 10 minutes instead. It’s ok to ignore media; it’s designed to get eyeballs and clicks and will use fear-based tactics to accomplish that.
4. Understand the different types of loss. An unrealized loss means that your asset decreased in value but you still own it. There is the potential for the asset to regain value with market performance, so it’s really a loss on paper. It becomes a realized loss once you sell the asset. When a realized loss occurs with a market decline, you can reinvest the money from the sale of the asset into another investment and retain the potential for the asset to increase in value. Locking in a loss is when you sell an asset at a depreciated value, and don’t reinvest it.
5. Practice active patience. Our brains want action, results, or instant gratification. “Be patient” isn’t helpful - it shuts down our brains because we don’t want to stop, wait, or do nothing. Active patience means to slow down, stay the course, and practice tolerating setbacks without distress. Focus on long-term results - what skills can you hone or concrete steps can you take to accomplish your desired outcome aside from current investment activity? Improve upon your finances and feel good by getting things in order, organizing your passwords, or donating to a charity.
6. Think of market declines like a bicycle wheel. You can only benefit in market rises by fully participating in market declines. Declines contribute to forward progress. Remember that a market cycle isn’t the same thing as the real risk of permanent loss.
7. Reflect on what’s going well. Investment performance is one sliver of your financial life. Review and celebrate your financial accomplishments. Our thoughts create our reality.
8. Remember that this is why you have an advisor. If you have delegated portfolio management to a professional, enjoy the time it has freed up. Your advisor will employ a disciplined approach and help you stay invested with the purpose of funding your goals.
Choose a few of these ideas to employ. If you need a bridge from fearing or doubting volatility to viewing it as an opportunity, you can borrow some of my outlook, which is positive.
Past performance is no guarantee of future results. Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, and Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Spring Hollow Financial, LLC and Cambridge are not affiliated.
