“Embrace the volatility” of the markets and stick with your original investment plan, say financial experts

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The US stock market is in troubled waters again.

On Wednesday, all three major US indices – the Dow, S&P 500 and Nasdaq – gave way that rising inflation could lead to higher prices and interest rate hikes and close a three-day series of losses in the market.

But on Thursday, stocks reversed and rose, led by so-called reopening deals like airlines and cruise lines.

Such fluctuations can be worrying for investors, and especially for those entering or about to retire. However, financial advisors say that the best course of action in sideways markets is to stick to your previous investment plan.

Volatility can be your friend

First, accept the relatively frequent market volatility as a normal part of the investing process and as the best way to escape inflation, said certified financial planner Brad Lineberger, president of Seaside Wealth Management in Carlsbad, Calif., Which manages approximately $ 165 million in assets .

“Embrace the volatility because that’s why investors get paid for their own shares,” he said.

This means that investors should stay calm even with extreme movements. Although stocks have turned in the past few months, long-term market returns are still based on the same factors: dividend yields, earnings growth, and valuation changes, according to Zach Abrams, CFP and manager of wealth management at Shaker Heights, Ohio. Capital Advisors who manage approximately $ 800 million in assets.

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Additionally, according to Abrams, sharp downturns can also provide an opportunity to buy more stocks and prepare for future profits.

Data shows that when the market falls, selling can knock you out for some of the biggest rebounds. For example, if you missed the best 20 days in the S&P 500 over the past 20 years, your average annual return would go from 6%, which you would have earned if you held the price, to 0.1%.

In the long term, stock market profits are strong. Even this year, stocks have risen sharply – the S&P 500 rose more than 8% by close of trading on Wednesday.

Have an emergency fund

Even if you know volatility is your friend in the long run, financial advisors recommend having an emergency cash fund on hand to weather a possible market collapse without selling.

When the stock market falls, it is better to spend the money in your emergency fund than to sell assets at a loss that cannot be recovered, according to Tony Zabiegala, chief operations officer and senior wealth advisor at Strategic Wealth Partners, Independence, Ohio -based company with more than $ 500 million in assets under management.

This also sustains in-game stock investments for big rebounds, as seen last week and year since the big sell-off in March 2020 sparked by the coronavirus pandemic.

For example, an investor would have only needed three to six months of living expenses in an emergency fund this year to avoid losses during the March 2020 collapse, said Lineberger of Seaside Wealth Management. That approach would also have kept investments in the market for the record-breaking rally-rally stocks after the pandemic hit.

Make a plan and stick with it

Sticking to your overall plan is generally the best thing you can do through a market collapse rather than panic and sell too early.

For investors who may be in or about to retire and are more concerned about a market decline, it is important to shift their investment mindset to protecting their wealth from growth or seeking the highest return, which can mean to take excessive risks.

Have the discipline to stick to your plan even if it doesn’t feel right.

Brad Lineberger

President of Seaside Wealth Management

“Managing risk is a really important part,” said Leyla Morgillo, CFP at Madison Financial Planning Group in Syracuse, New York, which manages approximately $ 200 million in assets. “It’s not about trying to get the highest return possible. It’s about protecting what you have.”

To stay committed to this goal, consultants recommend creating a plan or roadmap for investing in retirement well before you leave the workforce. This protects you from extreme emotional decisions with your investments in extreme market events.

“Have the discipline to stick to your plan even if it doesn’t feel right,” Lineberger said. “Checking your emotions at the door is the hardest part of being a successful investor, but it is the most important thing.”

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