The urge to flee

If you see your portfolio balance dip during periods of market volatility, you may feel the urge to flee the market and head for lower-risk investments. While this reactive behavior means you may miss out on the worst trading days, it also means you may miss out on the best ones. In many cases, timing the market for reentry simply results in selling low and buying high.

The benefit of being rational

Instead of letting your emotions take over, try responding on an intellectual level. The tips below can help you maintain perspective when making investment choices so you can keep your portfolio on track for the long run.

Start with a plan

If you don’t have one already, now’s the time. Create a financial plan that includes:

  • Your objectives.
  • Your time frame.
  • Your target asset mix.
  • How much—and how often—you’ll contribute to your portfolio.
  • A budget that factors in current assets and debts, as well as any known future income sources and expenses.
  • How often—and under what circumstances—you’ll rebalance your portfolio or change your asset mix.

“In essence, a financial plan is a pinnacle of proactivity. It’s a blueprint that’s designed to give you the best chance for investing success,” said Don Bennyhoff of Vanguard Investment Strategy Group. “Putting time and effort into your plan initially can benefit you in the long term—and each time you’re faced with what’s making headlines.”

Don Bennyhoff
Don Bennyhoff

Think of your financial plan as an anchor. Your financial plan is designed to help you reach your personal goals—not outperform the market at any given time.

“What’s in the headlines right now may make it feel difficult, at times, to stay the course,” said Bennyhoff. “But keep in mind that although the headlines have changed, it’s likely that your investment objectives haven’t.”

See the big picture

Focus on the progress of your entire portfolio over time, not on the ups and downs of individual investments. This may be easier said than done, so prepare.

“If you’re on the brink of making a change to your portfolio, ask yourself what’s driving the change,” Bennyhoff said. “Is it driven by the market and what’s in the headlines, or by a change in your circumstances? We generally don’t recommend changing your asset mix unless your circumstances have changed.”

Get support

If you have a financial advisor, start there. (If you’re considering partnering with an advisor, we can help.) An advisor can act as an investing coach when you feel tempted to stray from your well-thought-out plan, providing valuable guidance.

“Investing is hard. It’s emotional. You have a lot at stake. Getting a more objective perspective from someone who’s at arm’s length from your portfolio can help you make more rational decisions,” said Bennyhoff.

Notes:

Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.  There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

All investing is subject to risk, including the possible loss of the money you invest.

Diversification does not ensure a profit or protect against a loss.

Past performance is no guarantee of future results.