Metcalf Partners provides advice on recession watch

Two Ways to Weather Volatile Markets

It is one of those many times in history that volatility has set in on the markets. Some people don’t pay enough attention to financial planning to be aware of it. Some people keep a cool head and take a “wait and see” stance. While, others immediately jump into panic mode.

We have always said that one of the reasons our team of wealth advisors have jobs is not because we are amazing stock pickers or wizards who can predict every market swing, but because we have been successful in helping clients protect themselves from their own minds. In short, we aim to help people avoid making the wrong decisions at the wrong time.

In our opinion, when markets drop sharply there are only two options for weathering them:

Liquidate all of your equities and seek safety.

This is typically everyone’s first natural instinct, and understandably so. Let’s say, for example, that the markets drop 20 percent. If you liquidate your equity positions and exchange them for something less risky, like a certificate of deposit (CD), you can avoid losing any more if this drop continues.

However, historically we have seen markets rebound. If that happens, you just rode it down 20 percent and limited your chance to ride it back up. You have just defined the term “buy high, sell low.” Most people understand that is not a way to make money investing.

It can be tricky when your mind and your instincts tell you to seek safety. If you have decided that you cannot stomach investing in equities, it is our experience that you should fight your instinct and wait for markets to rebound to a reasonable level and then move to something that aims to provide a lower risk/return profile.

Stay the course and continue to hold your equity positions.

 This might sound scary, but in the past this option has served investors much better than liquidating equities in a panic. The risk of continuing to hold your equity investments is that the markets could continue to slide and you may incur further loss, which is very possible.

So, why would you do this? The main reason is that markets can be erratic, and it is very hard to know when they have hit bottom. Timing the sale and repurchase of investments can be extremely difficult.

Another option is to become more aggressive when markets decline and attempt to take advantage of a possible upswing. If you have money sitting in cash that you are considering investing or need to contribute to a retirement plan, doing it while the market is low can serve investors well over the long term.

If you are retired and/or taking distributions from your retirement accounts, another option can be to take your withdrawals out of your fixed accounts (bonds, CDs, etc.) when the market is trading low to avoid having to sell your equity positions at an unfavorable time. This may help you avoid the pitfall of “selling low.” If you are looking for advice concerning retirement or financial planning contact one of our certified CFP’s to learn more.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you speak with an investment professional prior to taking any actions.