You may question what you should do during market corrections or draw-downs. Should you sell positions and change your investment strategy due to recent market declines? Or, should you invest additional funds, if you have available cash reserves, into the market at lower price levels? This second-guessing and anguish is far too familiar for many investors. Experienced investors, however, know the investment markets exhibit considerable complexity and may from time to time exhibit unsettling volatility as well.

Inasmuch as there are endless economic, financial, and psychological variables involved as markets fluctuate, forecasting the market’s fluctuations is challenging even for the most seasoned investment professionals. In fact, we would suggest that no one has perfect clairvoyance regarding the investment markets. If your investment professional claims to have perfect clairvoyance regarding the financial markets, you should probably consider seeking counsel elsewhere.

Investing in a volatile market can be a stressful endeavor for the individual investor. Fearful emotions during volatile times are real—but they can be effectively managed to your advantage. By educating yourself, following a disciplined approach, and maintaining the proper mindset, you will see that a volatile market should not cause you too much concern—in fact, volatility should be expected, built into your strategy, and viewed as an opportunity. So, when the market roller coaster ride begins, you should be able to sit back and relax if you are willing to observe the following advice.  

Your “Safety Blanket”

To assist our clients in avoiding market volatility “panics,” we advise them to have a reasonable, comfortable “safety blanket” in place – cash reserves allocated to non-volatile investments such as high-yield savings accounts, money market funds, or certificates of deposit. We encourage our clients to maintain a cash reserve balance in the range of 6 to 24 months of their basic monthly living expenses. In order to ease your discomfort during volatile markets, we urge you to consider accumulating a sufficient cash reserve balance. With adequate reserves not “at risk,” our clients better manage their anxious emotions when / as the markets fluctuate downward. The knowledge and assurance provided by stable cash reserve investments can more than offset the anxiousness of the more volatile longer-term investment assets. Additionally, having sufficient cash reserves in place during retirement can negate the need to dip into investments during “down” markets.

Review and Commit to Your Investment Plan

When the investment markets experience a downturn and your portfolio value experiences a meaningful decline, it is natural to worry about your chosen investment strategy. During times of market volatility, we encourage you to revisit your financial plan and the corresponding investment strategies selected to help you achieve longer-term financial objectives. As a result of this review, you should confirm whether or not the proper risk-management strategies are in place to meet your needs and objectives, regardless of normal market fluctuations / volatility.

An effective way to manage investment risk is to diversify your portfolio into different asset classes, including, but certainly not limited to, investment-grade bonds, U.S. small and large cap equities, emerging market equities, etc. In Ecclesiastes 11:1-2, we are encouraged to adopt a diversified investment strategy: “Ship your grain across the sea; after many days you may receive a return. Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land” (NIV). If you are willing to heed the Lord’s proven, sound advice in Ecclesiastes, diversifying across asset classes and aligning your investment approach with your financial goals and tolerance for investment volatility, you are more likely to achieve your financial objectives over a long period of time. More importantly, you are less likely to worry when the market experiences a downturn inasmuch as you will have a well-defined plan and diversified investment strategy that is designed to weather downturns.  

Avoid Following the Crowd

Many inexperienced investors will abandon their investment strategy if / when they see their portfolio values drop significantly. It may seem like a reasonable reaction inasmuch as you likely want protection from losing even more. However, if you pull out of your investment strategy during a downturn, it is highly likely that you are being strongly influenced by the “recency effect;” believing your “most recent” experience will continue indefinitely. Extrapolation of your most recent results ~ for better or for worse ~ into the intermediate to longer-term future simply is not a good assumption. Markets cycle and fluctuate, ebb and flow. You should understand the potential cyclicality or volatility associated with your investment strategy. If you have a proper financial plan and corresponding investment strategy in place and understand its risk profile, you will behave better than the majority of investors during a market downturn. You will stay invested over long periods of time to achieve returns that exceed the returns of the crowd and experience less anxiety due in part to having shorter-term cash reserves during such downturns.

Interestingly, we encourage clients to invest more money during a market downturn while prices are low. In essence, we encourage them to “buy low” while investments are “on sale.” While this may seem contrarian, we have seen how this proven strategy works over long periods of time.

Contrary to our advice, a few clients pulled out of the investment market at exactly the wrong time during past downturns, in spite of my encouragement not to do so. They “sold low” and remained on the sidelines, not invested. As a result, they left hundreds of thousands of dollars on the table by not being invested when / as the markets recovered. Avoid this mistake and stick with your investment approach for your longer-term assets. You will be glad you did!

Focus on the Big Picture

Historically speaking, U.S. market downturns have always been followed by recoveries. Short-term fluctuations may be disconcerting, but they should not concern a long-term investor with a well-developed financial plan and investment strategy. We encourage you not to look at the daily fluctuations of your investment portfolio. You should certainly make adjustments and consult with your investment professional periodically, but daily or even weekly monitoring of your approach is only going to cause you concern, tempting you to cut your losses and pull your money out of the market. This shorter-term micro-management process is quite possibly the worst approach to take. Wealth creation is a long-term, maturation process; not a short-term microwave event.

Remember Who Provides Everything We Have

God provides for us, regardless of investment market conditions. In Luke 12:27-28, Jesus tells us “Consider how the wild flowers grow. They do not labor or spin. Yet I tell you, not even Solomon in all his splendor was dressed like one of these. If that is how God clothes the grass of the field, which is here today, and tomorrow is thrown into the fire, how much more will he clothe you—you of little faith!” (NIV). When we understand that God provides for us and that everything we have is a gift from him, we come to realize that we are stewards. Should we invest and plan wisely? Absolutely! Should we seek wise counsel about our investments? Again, absolutely! But we must also keep everything in perspective – God loves each one of us and knows what we need. He has provided everything that we have and will continue to provide what we need regardless of how our investments perform. This certainly gives me greater peace of mind!

Seek Professional Guidance

When market volatility hits, knowing you have a reasonable financial plan and investment strategy in place will further improve your peace of mind. You can try to create your own investment plan, but when the market exhibits volatility, you likely will wonder if you made a huge mistake. The best way to prevent this second-guessing is to consult with a well-trained, experienced, and professional financial planner and an investment advisor. These experts are trained in creating personalized financial plans and corresponding investment approaches designed to help you “weather market storms.” With the guidance of a team of financial planning and investment management professionals, you will rest easier knowing you are not making any costly “novice” mistakes. If you are interested in: 1) learning more about how to protect your wealth during market volatility, 2) how to implement an investment strategy that corresponds with your financial plan, or 3) getting a free assessment of the volatility / downside risks in your investment portfolios, our team at Semita Asset Management would be happy to help. Click here to book an appointment online!

About Michael

Michael Meagher is the Chief Executive Officer and Chief Investment Officer at Semita Asset Management LLC with more than 47 years of industry experience. He specializes in providing strategic, goal-based financial planning, risk management, retirement planning, and portfolio management services. Michael graduated from the University of Houston with an MBA in finance and holds both the Chartered Financial Analyst (CFA®) and Certified Kingdom Advisor (CKA®) designations. Learn more about Michael by connecting with him on LinkedIn.

CFP® () and CFP® () in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements

*The designation of Chartered Financial Analyst [“CFA”] is conferred by the Chartered Financial Analyst Institute, Charlottesville, Virginia The CFA candidate must meet the following requirements to be eligible for the designation:

1) Possess of an undergraduate degree plus four (4) years professional experience involving:

  • Evaluating or applying financial, economic, and/or statistical data as part of the investment decision-making process involving securities or similar investments, which includes, but is not limited to, publicly traded and privately placed stocks, bonds, and mortgages and their derivatives; commodity-based derivatives and mutual funds; and other investment assets, such as real estate and commodities, if these other investment assets are held as part of a diversified, securities-oriented investment portfolio; or
  • Supervising, directly or indirectly, persons who practice such activities; or
  • Teaching such activities, and

2) Successfully complete a study program that culminates with three (3) levels of examination each of which requires approximately 250 hours of study and preparation. The CFA Institute has a non-mandatory, or voluntary, program regarding continuing education requirements for the CFA charter holder.

**The designation of Certified Kingdom Advisor® [“CKA”] is conferred by Kingdom Advisors, Atlanta, GA The CKA candidate must be a disciple of Christ who has committed to be a person of character who, from a biblical worldview, serves clients with biblical financial advice in order to properly steward the resources entrusted to them. Kingdom Advisors has created the Certified Kingdom Advisor® designation to provide confidence to those looking for financial counsel from a biblical perspective. The Certified Kingdom Advisor® designation is given to advisors who:

  • Complete the Kingdom Advisors’ Core Training
  • Provide evidence of their technical competence
  • Commit to personal stewardship
  • Assert their belief in Jesus Christ
  • Provide evidence of their personal integrity
  • Commit to incorporating biblical wisdom into their financial advice