Your Game Plan for Volatile Markets, Ep #164

Stocks are now in a bear market. Rising interest rates mean bonds are having a horrible year. Inflation reached a 40-year high.

Headlines like these makes it tough to have confidence in your investment strategy.

This is why, today, we are reviewing how to create a retirement plan that provides peace of mind through an investment roller coaster. If you are worried about the future of your money, our goal this week is to provide you a game plan for volatile markets.

Press play to listen in or check out the video with the slideshow on our YouTube channel.

How the past can help us put the current situation into perspective

Since stocks are down, interest rates are rising, and inflation shows no sign of slowing down, you are probably losing money across the board. These kinds of market events can be stressful which is why looking back at the past can put things into perspective.

We look at historical data to help us understand that these declines are temporary. Even though the economy seems bleak now, it doesn’t mean that it will be that way forever.

It can be easy to forget when things are going well, but historically, the market experiences a correction about every two years.

While we know that market corrections are temporary, it can be hard to remember that when you are in the middle of the experience. Every year there is some kind of decline and, typically, every 6 years or so there is a bear market in which stock values drop by 30% or more. Bear markets are normal and usually go by quickly (even if it does seem like an eternity).

Bear markets mean that stocks are on sale for a discounted price

One way to take advantage of a stock market decline is to buy low to take advantage of the discounted stock prices. The way to make the temporary decline in stock values permanent is by selling your shares. Just like on a roller coaster ride, the only time the stock market is dangerous is when you get out of your seat.

History shows that investing in companies (stocks) is the best way to combat inflation. Over time investments return 3x more than the rate of inflation.

What should you do?

There are 4 ways to respond to a bear market: move to cash, rebalance, take advantage of tax-loss harvesting, or stay the course.

Hopefully, after listening to this episode, you won’t have the desire to move to cash during a bear market. You could take the opportunity to buy low and sell high by rebalancing while prices are low. Many decide to use tax-loss harvesting as a way to take advantage of a loss to improve their tax situation for the year. But oftentimes, staying the course is the best plan of action.

How do you know which option you should choose? Having a financial plan in place will help you ignore the media noise and ensure that you do the right thing for your situation.

Your financial plan will help you survive the investor’s roller coaster

Investment behavior is the primary indicator of investment success. If you struggle with staying the course during a bear market you may want to consider finding a financial advisor to guide you.

Do you have an investment strategy that helps you through times of uncertainty? If not, contact us to see how we can help you become a disciplined investor that doesn’t sweat the investor roller coaster.

Outline of This Episode

  • [2:42] The current economic situation
  • [6:25] What history can teach us
  • [13:20] Is this time different?
  • [14:50] What should you do?
  • [19:05] The media can cause you to think you can time the market
  • [22:30] Tax-loss harvesting can help you save on taxes
  • [24:22] Today’s progress principle

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