With the stock market experiencing a significant decline of about 6% over the past week, many investors nearing retirement or facing upcoming financial obligations, like college tuition, might be feeling anxious. Is now the time to panic? MarketWatch consulted several financial advisers and experts to provide guidance on how to navigate such market volatility. Their consensus? Stay the course and avoid overreacting, but there are important lessons and strategies to consider.
1. Should You Panic?
For most investors, the key is to stay calm and remember your long-term financial goals. According to Todd Stankiewicz, president of Sykon Capital, if you have a well-structured portfolio designed to meet your short- and long-term goals, the recent market decline should not be a major concern. “At the end of the day, it’s not about the S&P 500 itself, but about your personal rate of return and if it’s where it needs to be,” he said. The essence of successful investing is to focus on meeting your financial objectives over time rather than seeking quick gains in the market.
2. Context Matters
Despite the recent losses, it’s important to consider the bigger picture. The S&P 500 is still up by more than 8% since the start of 2024. Stephen Kates, principal financial analyst for Annuity.org and RetireGuide.com, pointed out that the market has only returned to its levels from a few months ago. “If you weren’t unhappy in May, you shouldn’t be unhappy today,” he noted. This perspective helps investors understand that short-term fluctuations are a normal part of market behavior and should be viewed within the context of longer-term trends and performance.
3. Exceptions to the Rule
There are, of course, exceptions. If you’re a day trader or significantly overexposed to stocks in your retirement account, you might need to reconsider your strategy. Brian Matthews, head of investment strategy at Domain Money, emphasized that those who should be concerned are “severely misallocated and misaligned with their goals.” Day traders and those with overly aggressive portfolios relative to their risk tolerance and financial goals may need to make adjustments to mitigate potential losses and align their investments with their long-term objectives.
4. Pay Attention and Be Honest with Yourself
While panicking is generally unnecessary, staying informed and honest about your risk tolerance is crucial. If a steep market decline causes significant stress, it might be time to reassess your investment strategy. Dan Egan, vice president of behavioral finance and investing with Betterment, suggested that if you’ve been heavily invested in stocks, it might be wise to consider a more balanced approach, such as moving from an 80/20 stock-to-fixed-income ratio to a 60/40 ratio. This adjustment can help align your portfolio with your comfort level. Being honest with yourself about your risk tolerance and financial goals can help ensure that your investment strategy remains appropriate and sustainable.
5. Reexamine and Adjust Your Portfolio Thoughtfully
Even if you’re comfortable with your current risk level, a market decline can be a good opportunity to review and adjust your portfolio. Nicole Strbich, managing director of financial planning for Buckingham Advisors, recommended maintaining your current allocation percentages but considering adjustments within those components. This approach can help you address any specific concerns or take advantage of new opportunities. Regularly reviewing your portfolio and making thoughtful adjustments can help you stay on track with your financial goals and respond effectively to changing market conditions.
Making Portfolio Changes: Timing and Strategy
The critical question for many investors is when and how to adjust their portfolios. Paul Karger, co-founder of TwinFocus, advised against making sudden, drastic changes based on market fluctuations. “It’s never a good idea to make day-to-day investment allocations based on what’s going on in the markets,” he said. Instead, he suggests waiting a few days or longer to see how the situation evolves. If you decide to make changes, consider doing so incrementally rather than all at once. “You should phase it in,” Karger recommended, emphasizing the importance of gradual adjustments over time. This strategy helps avoid making reactive decisions based on short-term market movements and supports a more measured approach to portfolio management.
The Importance of a Long-Term Perspective
In conclusion, while market declines can be unsettling, especially for those nearing major financial milestones like retirement or paying for college, the key is to remain focused on your long-term goals. Successful investing involves staying the course, maintaining a diversified portfolio, and making adjustments as needed based on a thoughtful review of your financial situation and goals. Panicking and making hasty changes are often more detrimental than staying the course with a well-considered investment strategy.
Investors should remember that markets have historically recovered from downturns, and maintaining a long-term perspective is crucial to achieving financial success. Regularly reviewing and adjusting your portfolio, being honest about your risk tolerance, and staying informed about market conditions can help you navigate periods of volatility and stay on track to meet your financial goals.
