market fluctuations

Market Fluctuations

Here are some thoughts to consider when reviewing your investments during a market downturn.

Feb 13, 2018

I was driving for about a year when I received my first speeding ticket. Do-gooder that I am, I was a bit dramatic about it, especially as I explained it to my older brother. He calmed me down by using his rationale:

“Okay, let’s look at the big picture. You’ve been driving for a year. Mom & Dad let you have the car for school two days a week and you’re allowed to use it two weekend days out of the month. So that’s about 10 days a month or 20 round trips. Multiply that by 12 months and you used the car 240 times before getting a ticket. So that $100 ticket divided by 240 means that each trip was just 42 cents extra. No problem!”

(I’m not saying this is good rationale, but if you have siblings, you can probably identify with it being big brother rationale!)

I’ve been driving (safely!) for many years now and this theory has stuck with me in more ways than one – take a look at the big picture. And when it comes to investing, especially when the market is fluctuating a lot, taking a step back and analyzing the whole situation is important.

Here are some thoughts to consider when reviewing your investments during a market downturn:

1. Don’t panic.

I know, easier said than done. But believe me, taking a step back helps you analyze the situation with a much clearer head. We’ve all made a rash decision in our lives, financial or otherwise, and played it back later with “if only.” Take a deep breath, sleep on it, take a walk or, if you must, log into and log out of your account before submitting any changes. The more time you can let pass before reacting to a market fluctuation, the lower the probability of you making a potential rash decision in the heat of the moment.

2. How much did you really “lose”?

Before you make any changes to your investment strategy, do yourself one favor: Go into your account and access a Statement on Demand. Use the starting date of when you started your retirement plan and today’s date as the end date. When you look at your activity by source, take note of your personal contributions. If your personal contributions amount to a balance that is below your current account balance, you’re still above water.

Run the statement on demand with a few different start and end dates and you’ll see that you might have withstood some rocky periods already and survived. This strategy lets you look at the big picture and run an inventory of what really happened. It may not even seem as severe as you originally thought.

3. What should you do now?

Consider when you plan to use those investment assets. Typically, the market rebounds shortly after a downfall and patient investors tend to see their accounts regenerate without having to do anything. With the “Great Recession” in 2008/2009, it took less than two years for the market to return and it’s practically tripled since then. In fact, when the market goes down, many investors see it as a great time to invest – the shares of stocks and mutual funds are lower than normal so their contributions go farther. If you aren’t planning to retire any time soon, you might not only be able to ride out the downfall, you might be able to use it to your advantage.

If you’re close to retirement or if you’re really panicking, talk to your financial advisor before making any changes to your investments. Your advisor will help you see the big picture and help you map out a current and future strategy for your account.

4. What should you do next time?

There will be more downfalls in the future. We don’t know when they’ll occur or how mild or major they will be, but the market will always fluctuate. Having a strategy ahead of time will make you take a deep breath and focus on your long-term goals, not the short-term blips. Take a risk profile quiz, like the one in our Participant Education Center, to aid you in determining your risk tolerance. Then, document details of what your asset allocation goal is and what you’ll do when the market drops x% or $x. If possible, write down this strategy and review it down the road the next time you see a market downturn. It may seem a bit silly to go through all of this, but a note reminding you to step back and look at the big picture might help put yourself at ease.