Coping With Stock Market Volatility

Question: The stock market is so volatile! It’s making me real nervous and my investments are going down. How do you deal with this for a living?

Answer: After nearly 20 years of helping retirees and pre-retirees manage their portfolios, I’ve actually gotten used to it. I deal with it by tuning out the white noise and controlling what I can control like my diversification, asset allocation, investment costs, and household expenses.

While we’ve probably never seen such a confluence of so many events at a given point in time – surging oil prices, inflation, housing bust, credit crisis, world economic slowdown, all in an election year – the markets have actually remained fairly resilient. The sky is not falling, despite what the pessimists would have you believe. Yes, the Dow Jones Industrial Average entered bear market territory in early July. Yes, oil prices are incredibly high. Yes, June was a really lousy month for stocks. We can’t change all this. But you might be surprised at how fast the stock market can change … for the better. Looking back, the market has recovered remarkably – and quickly – from some notable downturns. While it may seem trite to put it in such terms, it really could be much worse.

During this volatile period and every volatile period there is always a cycle of greed and fear. Greed and fear are the two things that move the market. We have periods where the markets get ahead of themselves and investors become too optimistic – and other periods where investors begin to panic, throw the baby out with the bath water, and become overly pessimistic. We are obviously in the throes, or very close to the latter scenario.

Bill’s Bottom-line: This volatile period will pass like all the others have.