When market volatility occurs, it’s completely natural to feel anxious about your finances. This is an uncomfortable time for all investors, seasoned and new.
It’s important to remember that market volatility is nothing new. If you’re working with a financial advisor, your financial plan is most likely already set up to weather any volatility that can pop up. They’re watching what’s going on in the markets and making any adjustments, if necessary. So staying the course is usually the best plan of action.
Even if you’re working with a financial professional, you may want to touch base during any ups and downs in the market. Here’s a list of questions that can help get the conversation started—and it begins with something you should be asking yourself.
Ask Yourself: How much risk am I actually comfortable with?
Times like these can make us all want to pull back a bit on the reigns and take a more conservative approach with our money. But are you reacting to current volatility (in which case you may want to stay the course)? Or have you experienced a life change such as marriage/divorce or bought a new home? In the latter case, it may be time to adjust.
One great way to gauge your risk tolerance is with our Risk Tolerance Quiz. It’s quick and easy to take, and it can help you better identify your current mindset. If your risk tolerance has changed, it’s time to reach out to your advisor. That way, they can adjust your plans to align with your current outlook.
Ask Your Advisor: What is the current state of my plan?
Your advisor will most likely start the conversation off by sharing a report detailing how the market decline has affected your portfolio and your plan. This is the time to dig in and really look at what’s going on with your finances.
Clarify how the situation could affect your plan in the near-term and further in the future. Will you need to adjust your budget for living expenses? Or put off retirement for a little while? Having all of the information up-front can help guide the rest of your conversation.
Also, look for assets you’ve held for tax reasons that may have imbalanced your portfolio. These assets could have declined enough where you can sell, or losses may be available in other securities to help offset those gains.
Ask Your Advisor: How is my portfolio designed to get me through markets like this one?
Diversification is important even when the markets are performing well, but it’s even more vital in times of volatility. Your advisor can walk you through how your portfolio has been built—ideally with a healthy mix of investment types that can help you weather the inherent ups and downs of the market.
Rebalancing your portfolio can also be helpful. By moving back to the target allocation, you’re naturally buying assets that have gone down the most and selling those that have done well. Keep in mind that sometimes your tax situation may make rebalancing less desirable.
Ask Your Advisor: How do markets with rising interest rates and inflation differ from other difficult markets?
Be sure to ask your advisor what they’ve included to help during rising rate environments and times of inflation. Interest rate cycles are measured in decades, not in weeks or months, so it’s important that your portfolio goes beyond just stocks and bonds.
Some asset classes may perform well during inflation. But, as with anything, there are pros and cons to hedging for inflation. Talk to your financial advisor about whether this approach fits with your goals and investment style.
When interest rates increase, the difference between yields from different investments can widen. Moving assets out of your checking or savings account and into an investing account may be a good way to take advantage of higher rates.
Your Financial Advisor Is Here for You
Always remember: Your financial advisor is here for you no matter the market conditions. They can answer your questions and provide objective guidance to keep your mindset fixed on the future.
If you’re not working with an advisor, let us help you connect with a wealth management professional who can help you build a financial plan tailored to your current needs and long-term goals.
Julie Ragatz is not affiliated with Cetera Wealth Services LLC. Any information provided by this individual is provided entirely on behalf of CWM, LLC and is in no way related to Cetera Wealth Services or its registered representatives.
A diversified portfolio does not ensure a profit or protect against loss in a declining market.
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