Welcome to the stock market roller coaster! It’s a bit jarring, especially on the heels of the tranquil 2017 merry go round, but as the bull market in stocks enters its tenth year, volatility abounds. Investors probably feel a bit of relief that the major indexes finished the first three months of the year with relatively small losses (Dow down 2.5 percent, the S&P 500 dropped 1.2 percent and the Russell 2000 was off 0.4 percent) or gains (NASDAQ up 2.3 percent, despite a 9.5 percent drop in Facebook) but that’s like saying the roller coaster ride ended in the small place that it started: what happened in between is where the action occurred.
According to MarketWatch, there have been more than twice as many sharp gyrations—in both directions—as was seen during 2017. In fact, neither the Dow nor the S&P 500 had any session that ended with a 2 percent move in either direction last year. So far this year, both have had six such sessions. The merry go round ride is over…welcome to the roller coaster.
Of course, because we are human beings, we act as if we have never seen or felt volatility before. Here’s a quick refresher of action items that can help you adjust to the roller coaster ride.
1. Create/Revisit Your Game Plan: Control your financial destiny by creating a financial game plan, which takes into account your risk tolerance and puts you on track to save enough money to reach your delineated goals.
2. Don’t mess with your rebalancing plan: Many retirement plans and large investment firms allow you to choose automatic rebalancing, which is exactly what you should be doing. If you haven’t rebalanced in a while and need to do it manually, make those adjustments. Don’t forget to free up any cash you might need over the next year (i.e. tuition, home down payment or car purchase). Additionally, this could be an ideal time to replenish your emergency reserve fund, which is where you set aside enough money to cover six to twelve months of living expenses.
3. Stop Trying to Beat or Time the Market: Despite evidence that it’s nearly impossible to beat the market consistently over the long term, many investors still delude themselves about being able to do so. So if you are sitting atop some cash and waiting for the “right” time to put it to work, ask yourself: Who knows when that will be?
Perhaps the most damning outcome of spending time and energy focusing any effort on the fool’s errand of finding market beating investments (I’m talking to you, Bitcoin!) or trying to time your entry and exit from the market is that doing so can divert your attention from the more important financial planning issues in your life – everything from taxes, to retirement planning to education funding.