Op-ed: Investors need to keep their emotions under control in this volatile market

Op-ed: Investors need to keep their emotions under control in this volatile market


NicolasMcComber | E+ | Getty Images

Whether you’re new to investing or have been in the market for years, you may feel a little bit like you are lost at sea looking for a safe harbor.

Investors are contending with a confluence of market forces such as inflation, interest rates increasing, and the Russia/Ukraine conflict.  This is a troublesome combination of macroeconomic factors that has combined with a world still dealing with the effects of the pandemic.

The changes in the market have prompted many investors to look for portfolio strategies on how to navigate this market.  Although no one can perfectly predict what is going to happen next, there are strategies that investors can consider implementing to help manage their portfolios through this volatility.

The starting point for every investor should be to take the emotion out of investing. The key, of course, is to avoid making irrational investing decisions.

More from FA Playbook:

Here’s a look at other stories impacting the financial advisor business.

Market volatility, especially when it’s resulting in asset prices declining, can make investors very emotional. The recent discussions on the possibility of a recession bring haunting feelings of 2008 (the great Financial Crisis) and 2020 (the start of the Covid-19 pandemic) to mind for many investors.

Fear often breeds poor investment decisions, so investors should try to pause and take a more analytical approach in assessing their investment decisions.  There is nothing wrong with changing an investment strategy or allocation as long as it is based on facts and not emotions.

As a part of taking a more analytical approach to the portfolio, investors should assess their current cash positions. Ideally, an investor should have enough liquid assets outside of the market to meet the next 12 months of living expenses.  The security of knowing that all current living expenses are met can help investors not be as emotionally and mentally affected by market fluctuations.

Investors should also focus on a long-term strategy and should not lose their appetite for stocks.

It is not uncommon for investors to give up on investing in stocks after a difficult time in the market. However, investors should not let the current volatility permanently close the door on stocks as an investment allocation.

Instead, investors should remind themselves that despite the poor start to 2022, stocks still remain the best source of long-term asset appreciation. The current market offers an opportunity to make investments today that will provide income and appreciation well into the future.    

An investment portfolio should also be thoroughly reviewed given the changes in the market environment. That’s means doing some rebalancing.

The market has taken a more defensive posture; quality companies with strong balance sheets and pricing power are outperforming now, and potentially, into the future.  With interest rates increasing, fixed income and cash investments will have poor long-term real returns.

Investing a portfolio in companies that pay dividends is an excellent way to provide cash flow to help buffer market volatility. Dividends are also found more often in strong, long-lived companies that can act as relative safe ports in a stormy market. Investors should also rethink which sectors may be beneficiaries of the current environment.

For instance, a case may be made that financials will benefit from the increase in interest rates or that health-care stocks will be immune from inflation and interest rate fears as demand for their products remain steady.

Finally, investors should not forget that there is value in harvesting tax losses from weak companies.  These losses can be used to offset gains in other investments and provide necessary cash for opportunistic portfolio reallocations. 

To be sure, the past few months have been challenging for every investor.

The best thing to do is to stay focused on your portfolio strategy and look for long-term opportunities in the market. Refocusing and reviewing the portfolio is an important part of a successful investment process.



Source

Modelo owner Constellation Brands misses on earnings as aluminum tariffs hit profitability
Business

Modelo owner Constellation Brands misses on earnings as aluminum tariffs hit profitability

Case of Modelo, a beer imported from Mexico, are seen for sale at a grocery store in Arlington, Virginia, February 3, 2025, following the announcement of tariffs by US President Donald Trump on important goods from Canada and Mexico. Saul Loeb | Afp | Getty Images Constellation Brands on Tuesday reported quarterly earnings and revenue […]

Read More
Climate threat to U.S. infrastructure is accelerating. Here’s what’s most at risk
Business

Climate threat to U.S. infrastructure is accelerating. Here’s what’s most at risk

U.S. infrastructure is barely getting a passing grade, and one of the fastest growing problems is climate change. Airports are flooding, bridges are melting from extreme heat, and telecommunications are getting slammed by increasingly extreme weather. In 2023, at Fort Lauderdale/Hollywood International Airport, historic rainfall turned runways into rivers, shutting down operations and stranding passengers. […]

Read More
Ford sales jump 14% in the second quarter, well above industry forecast
Business

Ford sales jump 14% in the second quarter, well above industry forecast

Ford sales rose 14.2% during the second quarter over the year-earlier period, about 10 times the estimated 1.4% industry increase, the automaker said Tuesday. New vehicle sales for the second quarter totaled 612,095, led in part by gains in its F-Series trucks and “electrified” vehicles, which includes hybrids and EVs. F-Series trucks saw their best […]

Read More