You’ve got big plans to build big wealth. Your nose is firmly attached to the grindstone. You’re meeting with your financial advisor. You’ve even been investing, maybe in your company’s 401(k), an IRA or a brokerage account.
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But the market isn’t cooperating with your plans, since it’s doing its best impression of a roller coaster. Though you’re determined to stay the course, part of you wonders if your goals for growing lasting wealth are about to be thwarted by market volatility.
You might not be able to control the market, but you can control your actions within it. And making smart decisions can keep your wealth-building plans moving along nicely, even if market conditions feel like the tornado that hurled Dorothy’s house off to Oz. GOBankingRates talked to Nancy Butler, CFP, CDFA, CLTC, CSA, founder of Above All Else, Success in Life and Business to get the scoop on these smart choices.
Don’t Overreact
This suggestion may seem like it’s easier said than done when headline after headline predicts doom and gloom in the markets. But panic isn’t a great north star for making financial decisions (or really most decisions in life).
Just ask Butler: She’s gone from being a divorced mom with no financial support to owning her own asset management and financial planning firm. She’s also observed what works for clients. And what works best is keeping a clear head and realizing that ups and downs in the market are inevitable.
But keeping a clear head doesn’t mean sitting on your derriere. You still need to develop and maintain a clear financial plan for yourself.
“Don’t let your emotions drive your decisions. Stay focused on your long-term investment objectives to help ensure your plans stay on track,” she said. “Maintain an appropriate level of cash reserves to ensure you have the funds needed in case of an emergency, so you will not be forced to liquidate securities when the market is down.”
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Have a Solid Overall Financial Plan
Speaking of having funds available in case of an emergency, Butler also wants you to have a solid overall financial plan that will enable you to meet your financial goals. Knowing that you’re building security and longevity into your plans can put your mind and your money at ease — keeping you from making sudden moves you’d likely come to regret.
“An optimal financial plan takes into consideration a lot more than asset allocation. Elements such as cash management, investment selection, protection management, tax management, and estate planning are also key pieces to a holistic plan,” Butler said. “Overlooking any of these elements can put your goals at risk. You should review and make any necessary adjustments to your plan at least annually.”
Diversify Your Portfolio
While you may have heard this advice before, it bears repeating — especially if you’re trying to weather a volatile time in the market.
“Diversified investing across stocks, bonds, real estate, cash and other investments can help smooth out inherent ups and downs in the market,” said Butler. “Your mix should be based on your risk tolerance, time frame, income tax situation and other important factors.”
Working with a trusted financial advisor will help you understand which mix of assets might be right for you. So, if you don’t already have an advisor on speed dial, it might be a good idea to seek one out.
Adopt a Disciplined Investment Strategy
When market conditions feel chaotic, you’ve got to remain calm in the storm. Butler suggests adopting disciplined investment strategies, such as dollar-cost averaging, to smooth out any fluctuations.
She describes dollar-cost averaging as investing a fixed amount at set intervals. Over time, this can lower your average cost per share compared with investing a lump sum at a single price, though results aren’t guaranteed.
As another core part of your disciplined strategy, Butler advocates for rebalancing your portfolio at least once a year. What does rebalancing look like? She’s glad you asked.
“Rebalancing restores the portfolio to its intended balance by either selling a portion of the outperforming assets and buying more of the underperforming ones, or by directing new contributions into the underweight categories,” she said. “This helps maintain the risk-and-return profile you originally set.”
Stay the Course (Really)
Remember how Butler advised you to keep your cool and avoid overreacting? It’s because she doesn’t want you to derail your plan by pulling out of the market in a fit of anxiety.
Once you have that overall financial plan in place, stay the course. Butler acknowledges that you could be tempted to try and “time the market” as a response to volatility, but she wants you to consider one thing.
“Effectively timing the market requires you to make two correct decisions that are very difficult to make: exactly when to sell and exactly when to buy,” she said. “Being out of the market at the wrong time — even if it’s for a short period — or buying or selling at the wrong time can cause you significant loss.”
You’re better off having a financial plan and disciplined investing strategy in place, regularly reviewing both, and trusting in those plans — and in yourself.
Looking to build a legacy? Check out our Life to Legacy guide for expert advice and smart moves you can make today.
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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: What To Do When Market Volatility Derails Your Wealth-Building Plan
