When I was a little girl, a bee stung me one summer day. I will never forget how much that hurt. In fact, as an adult, when I hear a bee flying by, I sometimes feel that sting again. This is what psychologists call phantom pains. The source of the pain might be gone, but the memory lingers.

I have a sense that many people are struggling with their own type of phantom pain right now. The downturn of 2008 left people with a stinging sensation that is hard to forget. Any market volatility brings back those feelings.

Some financial advisors will tell you that doing nothing is the best course of action during market volatility. However, I know that doing nothing just doesn’t feel right. When things go in directions we don’t like, our natural inclination is to take action. So what action should you take during this time of market volatility? What actions should you avoid? Here are my recommendations. 

profile picture for Mia Erickson
"I'm really passionate about building an integrated plan for my clients. Taxes, retirement, investments, estate planning and so much more. I care about getting the details right."

 

What to do during a market downturn?

When I speak with clients during times like these, my primary role is to reassure them that we are on track to achieve their goals. I remind them that the financial plans we’ve built take into account these types of market volatility. While this may be comforting, there is still a pause in the conversation when I’m asked this question. “Sounds good Mia, but should I do anything?”

My answer is almost always – yes. Here are the five areas where you should take action right now:

  • Stay calm and avoid rash decisions that could have long-term consequences.
  • Turn off the noise that is adding to your anxiety.
  • Make time to focus on and review your financial plan.
  • Take action on those elements of your financial plan that you may have overlooked.
  • Put things in perspective.

 

Stay calm and avoid rash decisions

I believe you should remain calm, especially in times of adversity. Don’t allow fear to shape your actions. Take control of your situation by controlling your emotions. Those who take rash actions during market volatility typically lose. I don’t want to see that happen to you. The more you remain calm and focus on your long-term goals, the greater the likelihood that you’ll achieve those goals.

I think it is important to remember that corrections are a sign of a healthy market. Why do I say this? Any market that simply charges upward, with no corrections or plateaus, is likely to topple at some point. Great will be the fall of that market. Corrections are an indication that skepticism is still at work, doing its job of protecting investors. This is healthy.

Some experts predict that the markets should have about a 10% correction about every 18 months. To put this in perspective, it’s been four and a half years since we’ve seen a correction. So I’m not particularly worried about this latest market volatility. You might say that it’s actually overdue.

 

Turn off the noise that is adding to your anxiety

Like the buzzing wings of bees, the noise from the financial press can create phantom pains. This is not only a huge distraction, it’s also potentially damaging to your health and peace of mind. More to the point, it’s completely unnecessary.

While certain financial prognosticators on television might be interesting, even entertaining, to watch, their advice is not customized to your family. So I recommend that you turn off the sources of information that deliver financial advice to the millions, but not exclusively to you.

 

Make time to focus on and review your financial plan

Your plan has a lot of detail in it, not least in that it accounts for market volatility. When we first built your plan, we customized it to your long-term goals. So as you focus on your financial plan, ask yourself these questions:

  • What has changed in your needs, not the market? 
  • Have your cash-flow requirements gone up or down? 
  • Has your income gone up or down?
  • Have your retirement needs changed?
  • Have you changed the timeframe in which you plan to retire?
  • Has something changed in your family situation that would require a change in your plan?

If nothing in your situation has changed, other than what’s happened in the markets, then making changes to your financial plan may not be wise.

 

Take action on those elements of your financial plan that you may have overlooked

I know that financial plans have a lot of details that need to be managed. There are many such details I manage on behalf of my clients. Yet there are other steps that only clients can complete.

However, life often gets in the way. We are all busy and sometimes we don’t take the steps we should take to put ourselves in the best possible position to achieve our goals. So it’s a good idea to use this time to check off your list certain things that might be left undone.

But this is also a good time to think about how you can take advantage of market volatility. For instance, if you have a strong cash position, now may be a time to invest. This should be carefully considered in consultation with your Whitnell relationship manager.

Your cash-flows, savings and expenses will impact your financial outcomes more than any other factor. If you have not taken specific steps that your financial advisor has counseled you to take, now is the time to look at the best way to do that.

 

Put things in perspective

Market volatility is only one type of uncertainty you will encounter over the next several years and over the life of the financial plan that we’ve developed for you. There are so many other types of uncertainties that can impact your financial plan. Here are just a few:

  • Death of a bread-winner
  • Loss of income
  • Divorce
  • Medical emergency
  • Having to support an aging parent
  • Substantial increases in costs of college funding and medical insurance

Your financial plan is built to withstand all sorts of uncertainties. However, if you make significant changes every time you encounter some type of adversity, you decrease your chances of achieving your goals.

Life is full of all sorts of uncertainties. You put yourself in the best position to achieve your goals by developing a comprehensive financial plan and sticking to it over time.

 

Can we talk?

Phantom pains can cause us to run away in fear or to focus more intently on those goals that matter most to our future. The choices we make now will have a huge bearing on our future financial situation. I encourage you to take action in these five areas to realize the best possible outcome for your family.

If you would like to discuss elements of your financial plan and how this recent market volatility will impact your family, my door is open. Let’s look ahead together at the future of your dreams.

 

The information contained in this article is provided for informational purposes only. No illustration or content in it should be construed as a substitute for informed professional tax, legal, and/or financial advice.