Financially Real

How To Stay Emotionally Competent During Market Volatility

How To Remain Emotionally Competent during Market Volatility | www.TheHeavyPurse.comA week ago, we woke-up on a Monday morning to find the stock market in a massive downward spiral, falling more than 1,000 points within minutes of the opening bell. It was the worst start since the financial crisis in 2008, bringing back many bad memories and investor fears. The media was filled with doom and gloom stories as we began to mentally prepare ourselves for the worst.

Like you, I’m am investor too. I am not immune to fear or panic, nor do I enjoy seeing my portfolio lose money. Market volatility, especially extreme swings, are stressful AND a normal, natural occurrence. There are underlying causes that create market volatility and we cannot control how the market responds as a whole. However, what we can control is our response. And it is often our response that determines whom will be victors and losers.

Black Monday Sell-Off

Dubbed Black Monday by the media, the Dow Jones industrial average reached its lowest level in more than a year. While the Dow fell more than 1,000 points at the start of the day, the losses leveled throughout the day and eventually closed down 588 points. Investors held their breath, worrying about what tomorrow and the following days and weeks would bring. On the minds of many was what caused this downturn.

The simple explanation is there has been much fear about the slowdown in China’s economy and the possibility that it may be worse than predicted led to severe swings in global stock markets and finally our own.

Market Volatility is a Part of Investing

What I want to make clear to you is that the stock market is always going to experience market volatility. Sometimes it is relatively mild and may even go unnoticed by you and the media. Other times, it is a spine-tingling roller coaster drop that leaves everyone feeling shaky and fearful. The underlying cause of extreme market volatility will likely differ in each instance, but what really matters most is your response.

Disclosure: These strategies may not be relevant to your personal situation and should be discussed with your CPA and financial advisor prior to implementation.

Opportunities during Market Downturns

Whenever the market is experiencing extreme volatility, we hear prognasticators shout, “The sky is falling” and create panic. These stories are sexy and bring readers and viewers to all the various 24/7 news channels and websites. Fear makes people pay attention. Too often they pay attention to all the wrong things and forget that market volatility also creates opportunity, if you look for them.

A Sale You Don’t Want to Miss

We are all familiar with the well-known investment adage, “buy low and sell high”. Yet, many investors struggle to follow that advice. We tend to do the exact opposite, in fact. When markets experience such a big sell-off, even healthy companies are affected and trade at “discount” prices. You shouldn’t make rash decisions, of course, but now is a great time to do your homework and see if some of those companies that were out-of-reach prior, may now be ripe for the picking and are a good match to your goals, risk tolerance and time horizon.

Put More Money into the Stock Market

It may seem counterintuitive since you’re likely see loss in your portfolio. The thought of investing more money and seeing it disappear seems masochistic. Who would do that to themselves? A long-term investor who is again willing to buy low and accept some loss now to watch it grow when the markets go back up. Remember the market is cyclical. It goes up; it goes down.

Harvest Tax Losses

I admit that while I don’t like market pull backs, I don’t hate them either. There is opportunity to mine, including creating Long Term Capital losses that you carry forward to the years where you have capital gains. I go into more detail about harvesting tax losses in my post on creating a tax-efficient portfolio.

Review Portfolio Against Your Goals

Market volatility reminds people to review their portfolio, but it doesn’t mean that you have to make changes, unless your goals have changed and your current portfolio is no longer in alignment with what you want your money to do for you. Many people tend to choose investments and forget about them, which can also mean their portfolios need rebalancing. Just be mindful that you don’t let today’s current market volatility dictate how you build or adjust your portfolio. Your goals, risk tolerance and time horizon should determine which investments are right for you.

What To Avoid Doing During a Market Course Correction

Don’t panic and make emotional decisions. I understand this is scary and nerve-wracking. Every instinct may be shouting “Sell! Sell! Sell!” but I encourage you to instead take a deep breath and a step back. To give yourself some perspective. So when and if you need to make changes to your portfolio, you are not making an emotional decision or a knee-jerk reaction that you might regret later, but one that truly supports your goals and long-term financial well-being.

What To Do Instead of Worrying:

  1. Educate yourself. Talk to your financial advisor to understand what’s behind the market volatility and what it means to your investments.
  2. Identify any opportunities that you should take advantage of.
  3. Review goals and rebalance your portfolio, if needed

Now you feel more in control, which alleviates much fear and puts you back in the driver’s seat.

Be an Emotionally Competent Investor

The markets will always have bad days and good days. We may love the good days more than the bad days, but as long as we remain emotionally competent, we increase our changes of being one of the victors in the long run.

How do you stay calm during market volatility?


August 31, 2015  •  16 Comments  •  Financially Real

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  1. Monday, August 31st, 2015
    Great minds think alike! :) Looks like we're sharing similar posts today. I haven't had too many clients call, surprisingly. But we had an internal meeting about it and have discussed it at length. I'm hoping there's not much more of it this week!!
    • Shannon Ryan
      Thursday, September 3rd, 2015
      It's good that your clients are staying calm, Natalie. My team and I have been doing proactive calls to clients to touch base, answer questions and alleviate concerns.
  2. Monday, August 31st, 2015
    I wrote about something very similar today. :) Looks like great minds think alike! We have short memories and when the media likes to tout what's going on it can be very easy to start focusing on that fear. That being said, you need to keep that long-term mindset, look for opportunities and remind yourself of your goals. As for us, we put more money in the market.
    • Shannon Ryan
      Thursday, September 3rd, 2015
      Ha! Great minds do think alike, John! Investors have notoriously short memories and are easily spooked. A long-term mindset, focus on goals and knowledge go along way to helping investors stay calm. Good for you for putting more money in the market!
  3. Monday, August 31st, 2015
    I am pretty much ignoring it. My investment timeline is so long that I'm not concerned about it at the moment. And by the time I need to worry, I will have moved all my dollars to safer investments.
    • Shannon Ryan
      Thursday, September 3rd, 2015
      Exactly, young investors like yourself should definitely be looking at it from an opportunity perspective. A good plan takes into account that volatility and bear markets happen.
  4. Monday, August 31st, 2015
    Long term investors have nothing to worry about when the market falls. Unfortunately a lot of people aren't investing for the long-term, at least for a portion of their investments. I have a number of friends who plan on selling some stocks to help pay for a home purchase in the relatively near future. They are the ones who are at risk here, along with people who are actively selling stocks to fund retirement. For the long-term 20- and 30- something investor there is nothing to fear at all.
    • Shannon Ryan
      Thursday, September 3rd, 2015
      It's true that people who need to access money in the near future may have more risk than those who do need it for many years. This is why planning is equally (if sometimes not more) important than your actual investment selection. It's important to have retirement income strategy in place and this should be done years before retirement. To help with tax liability and volatility, because they are always going to be there, even in retirement.
  5. Tuesday, September 1st, 2015
    It's definitely easy to get emotional when you see nothing but red on the screens but it's important to keep investing in perspective. I always make sure that my clients understand the reasons why they are investing which are usually longer term goals and since that's the case, the short term blips are not anything for them to stress about.
    • Shannon Ryan
      Thursday, September 3rd, 2015
      It is very easy to get emotional. It taps into our fears and given what we hear on the news, it's very easy to make knee-jerk reactions. I agree knowing why you're investing helps people keep perspective as does understanding how we take volatility into consideration when we do planning with them.
  6. Wednesday, September 2nd, 2015
    Great post! As you mentioned, there are many opportunties that come from this volatility. For some, this could be a great thing in the aggregate. But it definitely won't be if we freak out.

    I like to focus only on the things that I can control. I'm comfortable with our investing strategy and where our money is going - so I'm just going to let it ride for another 4 decades (something will change, but you get the point :))

    A really good investing strategy is to cut your cable. Media made us afraid of shark attacks. Now they're doing their best to make us afraid of investing.
    • Shannon Ryan
      Thursday, September 3rd, 2015
      There is definite opportunity to mine during market volatility if you take the time to look for them. And you're right, when people are too busy panicking, they forget to look for them. We must always remember that fear gets people's attention, which is why so many news channels choose to fuel the flames.
  7. Wednesday, September 2nd, 2015
    I hate how the media takes something like these market dips and blows them up so big you'd think the world was ending. This is why I try to keep TV to a minimum. Too much drama!
    • Shannon Ryan
      Thursday, September 3rd, 2015
      Good for you, Laurie. It's a newsworthy event but I wish the outcome lead to more education versus fear.
  8. Thursday, September 3rd, 2015
    I try to avoid all news when the market is tanking. It's always a doomsday scenario with the media isn't it?
    I've learned from experience the market goes through these gyrations and if I keep my head I'll end up better on the other side of it.
    • Shannon Ryan
      Thursday, September 3rd, 2015
      It has become such a doomsday scenario and this isn't our first rodeo with market volatility. Nor will it be our least. Education changed how you handle volatility. Can you imagine if everyone understood this?
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    "As a Certified Financial Planner, it is my passion to help individuals and families build a healthy relationship with money. I look forward to helping you raise financially confident kids.” - Shannon Ryan