4 Reasons Financial Planners Stay Invested During Market Swings — and You Should, Too
When markets plunge, it's easy to feel like you should do something. However, most financial planners say the biggest investing wins often come from resisting that urge.
Rather than reacting to alarming headlines or temporary losses, they rely on history, preparation and disciplined long-term planning to navigate periods of volatility. Here's why.
Keep Learning: 80% of Investors Expect Higher Taxes: Here's How To Tax-Smart Your Portfolio Now
Get Going: 8 Low-Risk Accounts Proven to Grow Your Money Up to 13x Faster
Market Downturns Are Normal
There's no need to panic, as market volatility is a feature of investing, not a flaw. Brad Clark, investment advisor representative and founder of Solomon Financial, explained that when you look at the history of the market, “Downturns typically are short periods of time followed by nice recoveries. It is extremely rare for the market to be down for an extended period of time."
Historically, markets are up about 80% of the time, or roughly eight out of 10 years, he said.
Because of the amount of data financial planners have about how markets behave, they can build plans that sustain market volatility,” said Maria Castillo Dominguez, a certified financial planner (CFP) and founder of Valoria Wealth Management.
The Biggest Investing Mistake Happens After the Market Falls
When people without this knowledge sell in a panic, they often make a big mistake, Clark said, which turns temporary paper losses into permanent ones. “They were invested, took the dip, and then locked in the dip. This kills portfolio performance,” Clark said.
Dominguez reassured nervous investors that "all major downturns had a recovery." Even a market dip as big as the 2008 housing-inspired crash within a year by around 70%, she said. “If you freak out and sell, then it is hard to estimate when to get back in, and you can miss out on the recovery. Create a plan and stay the course."
Planning Ahead Makes It Easier To Stay Calm
Financial planners don't wait until markets are crashing to decide what to do; they prepare clients in advance.
Good education is a foundation of weathering volatile markets, Clark said, as well as “proper coaching” from financial planners.
Dominguez pointed out that "a bearish market" will happen at some point, so having a clear plan “takes the decision out of the moment.” The key is to remind yourself of your plan when there is a market drop, she said. Market dips may feel scary, but the real danger is overreacting in the moment.
Cash, Diversification and Long-Term Thinking Help You Ride Out Volatility
A well-built portfolio should include safeguards that make it easier to stay invested, which means staying diversified and having cash reserves to prevent forced selling, Clark said.
For example, Dominguez added, “If you are invested in the U.S., international and different type of assets, they will likely behave differently during markets volatility so your portfolio takes less of a hit.” She urged a “zoom out” approach where you stay invested for the long-term and build a portfolio that can withstand short periods of volatility or downturns.
Be sure to consider your time horizon, cash needs, diversification, risk tolerance and taxes before making any kind of move.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: