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Insights from The Mind Money Spectrum Podcast Episode #20
Market downturns are a natural part of investing, but when volatility spikes and your portfolio takes a hit, the instinct to react quickly can be overwhelming. The global events of early 2020, especially the COVID-19 pandemic onset, underscore the importance of measured, thoughtful responses rather than knee-jerk reactions.
As a fee-only fiduciary financial advisor, I prioritize helping high-performance professionals navigate these turbulent times with clarity and a focus on long-term financial security and freedom. Here’s the critical advice you cannot afford to ignore when markets crash, based on insights from our April 28, 2020 Mind Money Spectrum podcast episode and years of experience managing portfolios for clients.
Understanding That Volatility Is Normal
First, acknowledge that the stock market doesn’t follow a straight upward path. It moves in fits and starts, with corrections and crashes woven into its history. For context, from February 19 to February 28, 2020, the S&P 500 experienced a roughly 12.7% drop, followed by a partial rebound. This pattern echoes other headline-driven market reactions, such as during SARS and Zika, which led to drops of similar magnitude.
These corrections can feel like a shock—especially during emotionally charged times—but they’re part of the investing landscape. Don’t view a market dip as a signal to abandon your strategy or panic sell.
Don’t Let Headlines Drive Your Decisions
Media coverage tends to spotlight dramatic forecasts and fear-driven narratives. As humans, we are wired to follow confident, definitive voices — the “hedgehogs” — who claim certainty, even when the future is inherently unpredictable. Meanwhile, the more realistic “foxes” acknowledge uncertainty and weigh probabilities.
When the news screams “market crash!” or “economic disaster incoming!”, a healthy dose of skepticism is essential. Most headlines aim to capture attention and emotion, not provide actionable investment guidance. As a result, following this noise can lead investors to make costly mistakes.
Focus on What You Can Control
Embracing the Serenity Prayer mindset is invaluable: accept what you cannot change, muster courage to take action where you can, and strive for the wisdom to know the difference. You cannot control the economy, virus outbreaks, or geopolitical turmoil. But you can control how you structure your portfolio, how often you check on it, and how you respond to emotions.
I often encourage clients to minimize checking market movements daily or even weekly. The short-term noise does not affect your long-term investment outcomes, and frequently monitoring can increase stress and prompt rash decisions.
Asset Allocation Anchored by Your Time Horizon
Your investment time horizon is the most critical variable in how you weather market storms. If your timeline is decades — saving for retirement 20 or 30 years away — temporary downturns are less concerning. Historically, over 25-year periods, the stock market has never lost money when adjusted for inflation.
Shorter time horizons call for a more conservative approach, typically with a higher allocation to bonds and cash equivalents. Bonds frequently act inversely to stocks, providing ballast in turbulent times. For example, during the early 2020 correction, bonds rose by roughly 2% over a few weeks — a valuable offset to falling equities.
If you might need to withdraw funds in the near term, it’s vital to have lower risk assets. Investing short-term money in stocks is dangerous and can force selling at losses during downturns.
Stay the Course & Use the Market Dip to Your Advantage
Reacting emotionally to a crashing market usually leads to selling low and locking in losses. Instead, staying invested with a diversified portfolio suited to your goals and risk tolerance is paramount.
Periods of market weakness also present concrete, practical opportunities that align with a fiduciary, cost-conscious approach:
- Tax Loss Harvesting: Selling investments that are down to realize losses and offset taxable gains, then reinvesting in similar holdings to maintain your asset allocation.
- Roth IRA Conversions: When traditional IRA balances fall, converting to a Roth IRA may trigger lower taxable income. This strategy requires careful consideration but can reduce future tax liabilities.
- Rebalancing: When stocks have declined, your portfolio allocation may shift. Selling bonds or cash and buying stocks to bring your allocation back in line forces you to buy low and sell high.
- Exercising Stock Options: For those granted company stock options, market dips may reduce the cost of exercising them and the resulting tax impact.
These strategies emphasize a measured, planned approach over reactive trading or speculation. They enhance tax efficiency and can improve long-term portfolio performance without attempting to time the market.
The Importance of a Fiduciary Relationship
During volatile times, working with a fee-only fiduciary advisor ensures your best interests remain front and center — free from conflicts of interest like commissions or selling proprietary products. This relationship provides objective guidance rooted in careful planning, historical data, and behavioral insights.
As your advisor, I strive to help you focus on what matters most: aligning your financial plan with your lifestyle goals, risk tolerance, and timeframe. When the market is uncertain, pivoting your attention to your life plan — whether that’s family, career, or personal pursuits — is often the most productive course.
Embrace Patience, Perspective, and Planning
In the face of market turbulence, here are key takeaways to guard your financial security and freedom:
- Accept market volatility as normal. Avoid panic selling or chasing headlines.
- Focus on your planning horizon. Time diversified investments appropriately for your timeframe.
- Maintain a disciplined asset allocation. Include bonds to reduce portfolio volatility.
- Minimize market checking. Don’t let daily fluctuations derail your emotions.
- Look for tax and rebalancing opportunities. Use downturns to your advantage.
- Work with a fiduciary advisor. Get objective advice aligned with your best interest.
- Focus on your life goals beyond the market. Financial freedom is about more than portfolio values.
Remember, if history is any guide, markets recover over time. Capturing that growth requires sticking to your plan and tuning out the noise. Most importantly, your financial strategy should empower you to pursue the lifestyle and freedoms you truly desire, rather than chasing every market headline.
If you’re feeling uncertain about your portfolio or strategy, now is the perfect time to review your plan with a trusted fee-only advisor who puts your goals first. Together, we can ensure your investments and financial plan are designed to weather inevitable storms — allowing you to stay confident and focused on what matters most.
For more insights and ongoing financial guidance, visit InvestingForever.com, where we help high-performance professionals like you make smart, practical investment decisions that lead to lasting financial independence.
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If you’re ever in need of guidance, these blog posts may be of help. But be sure to contact a financial, tax, or legal professional for guidance and information specific to your individual situation. And as always you can reach out to me directly here with questions or concerns about your personal situation.