By Taylor Schulte | Financial News
As most of you know, Monday, Aug. 24 was an extremely turbulent day for U.S. stocks, with an unprecedented and record-breaking 1,000-point plunge by the Dow Jones Industrial Average and all three major U.S. benchmarks falling below correction levels. Panic ensued, with stock prices for a number of iconic American companies declining dramatically, at an instant. The global mayhem, which contributed to the U.S. market volatility, and the market ups and downs, continued throughout the week, with both the Dow and Nasdaq falling into correction mode by Friday, Aug. 28 — the first since 2011.
While market declines are never easy and cause for concern is certainly understandable, it’s important to note it is normal for markets to rise and fall. Focusing on things you can control will generate much better results than panicking over things that are outside of your control. Recent events are also a good reminder that your plan should be built around you and your personal goals and not anyone else’s.
Below are my recommendations on three things you can do right now:
Do nothing. During volatile periods, investors often feel inclined to make changes to their portfolio. Taking action gives people the perception of control — even if those actions do not generate positive results. Even though doing nothing during a turbulent time is extremely difficult, it can actually be better than doing something. Don’t lose sight of your long-term goals — be patient and do nothing.
Turn off the news. While it’s important to stay informed, the more you update yourself on market fluctuations, the more volatile it will appear. Remember — no one truly knows what will happen next, nor does your media outlet have insight to your personal financial situation or your goals. Turn off the news (broadcast, online, social media, etc.) and disconnect from the frenzy, at least temporarily.
Reassess risk. Recent events are a good reminder that markets don’t always go up. Use this time to reflect on your behavior over the last few days and reassess your tolerance for risk. Were you worried? Did you panic? Did you lose sleep? Perhaps your portfolio is not positioned appropriately. If it is not in line with your tolerance for risk, you might have a harder time holding on during times like these.
Now is also a good time to revisit your financial plan and determine your capacity for risk — how much risk you need to take to reach our goals. Maybe you don’t need to own as many risky securities to reach your goals.
Regardless of what you will do (or have already done), do your best to stay focused on the things you can control such as fees, expenses, taxes, and the allocation of your assets. Take a look at all the essential components of your financial plan and stay focused on your long-term goals.
—Taylor Schulte, CFP is the founder of Define Financial in Downtown San Diego. Schulte specializes in providing independent, objective, financial advice to individuals, families and businesses. He can be reached at 619-577-4002 or [email protected].
