Market Volatility and What You Can Do Now

by Guest on January 28, 2019

in Benefits

Portland OR

The last year had its share of dark times, but periods of volatility, poor returns, economic downturns, and geopolitical chaos are inevitable and, in the end, create the opportunities that allow fundamental strategies to work. Just like water doesn’t instantly vaporize, but instead needs to first boil and churn to transform into rising steam, transitions in capital markets are painfully chaotic in the short term. But this “phase transition,” to borrow a term from physics, is ultimately necessary to move us to a new state. When we do transition to an environment where fundamentals and valuations matter and the distortions we’ve experienced during this market cycle fade to the background, it will be an exciting and rewarding time to be a globally diversified investor again.

Your Market Downturn Toolkit

“Stay the course.” “Stick with your asset allocation plan.” “Focus on what you can control.” Those are worthwhile pieces of advice during market corrections like the one we’ve experienced recently. But they can ring a little platitudinous for some investors. How do they know if the course they’re on is the right course? What if they don’t know what their asset allocations are, let alone whether they’re reasonable? And which factors do they actually control, and how can they control them?

Knocking off the following investment jobs will keep you focused on the big picture and cope with market volatility in a concrete and productive way. Not only will it give you more confidence in your plan — or at least focus your attention on the steps you need to take in order to get it in better shape — but it will also serve to distract your attention from activities that aren’t helpful, like compulsively checking your portfolio balance or the S&P’s minute-by-minute fluctuations.

Job: Check Up on the Reasonableness of Your Stock/Bond Mix

As markets have trended up for the better part of the decade, it has been easy to let equity winners ride. The net effect of that inattention is that untended portfolios have become progressively more equity-heavy and volatile: A portfolio that was 60% stock/40% bond in 2009 is more than 80% stock today. Thus, a key job for investors attempting to see if their portfolios are too risky is to assess their asset allocations. People who are retired or getting closer to retirement can use their own portfolio spending amounts to dictate a sensible asset allocation framework.

Job: See If Your Plan Is on Track

Many investors naturally wonder if an investment downturn is going to be so severe that it derails their plans. Will retirement — which seemed so close just a few short weeks ago — need to wait? Are there any ways to make a save? The gold standard for getting a check on the viability of your plan is to sit down with a fee-only financial planner. There are also plenty of online tools available for DIYers aiming to get their arms around whether their retirement plans are on track. We recommend T. Rowe Price’s Retirement Income Calculator, but it’s worthwhile to sample a range of options. To keep your plan on track on an ongoing basis, an investment policy statement is invaluable. You can customize yours to suit your own needs, but at a minimum, your document should state your investment goals (date, amount, duration), ongoing contribution amounts, basic asset allocation framework, and what qualities you’re seeking in your investments.

Job: Check Up on Investment Quality

After you’ve assessed your portfolio’s asset allocation and viability, take a closer look at the quality of the investments you’ve chosen to populate your plan. Rather than being blinded by short-term gains (or losses), try to focus instead on the big picture. Do your holdings align with the qualities you’ve laid out in your investment policy statement (above)? Is your portfolio as streamlined as it can be, or can you identify redundancies?

Job: Check Up on Your Spending

Investors are often exhorted to focus on what they can control when the markets are uncertain and volatile. At the top of the “In Your Control” list should be your savings and spending rates: How much you are able to invest on an ongoing basis will be by far the biggest determinant of when and whether you reach your financial goals. A strong market and enlarged portfolio balances can stoke a “wealth effect,” making it more comfortable to spend than you otherwise would. If you haven’t done a budget recently, there is a host of online tools and apps for tracking your expenses on an ongoing basis.

Alternatively, you can create a budget the old-fashioned way, using an Excel spreadsheet or other budget worksheet.

Article contributed by Matisse Capital.
For more information contact Dan Sholian
503-210-3002 |

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