Stressed Out About Your Investments? Here's What You Need to Know
Strategies for Shielding Your Finances During Market Turmoil
With trade tensions escalating and financial forecasts looking gloomy, it's no surprise that folks are feeling jittery about their investment portfolios. A recent Reuters poll shows that the likelihood of a US recession within the next 12 months has jumped to 45%, the highest since December 2023.
Donald Trump's tariffs, driving a global trade war, have stirred up concerns about inflation, slower growth, and potential layoffs. Welcome to a "risk-off" environment, where investors gravitate towards safer assets, leaving volatile options like stocks behind.
But Douglas Boneparth, a certified financial planner and founder of wealth management firm Bone Fide Wealth, has a calming message: "Don't panic! When markets get choppy, the smartest move you can make is to pause and plan."
Plan, Don't Panic
It may be tempting to hit the "sell" button, but leading financial experts advise against it. "Short-term volatility is part of the game," Boneparth reminds us. "The worst thing you can do is sell at the bottom."
Selling during a downturn can lock in losses, and investors might miss out on the market's biggest recovery days that typically drive long-term gains. Catherine Valega, a certified financial planner with Green Bee Advisory in Boston, echoes this sentiment. "Work with financial advisors who can help with your long-term plans. I like to say we set the guardrails, like a GPS for your financial life."
What's Considered 'Safe' May Vary
In turbulent markets, many investors gravitate towards cash equivalents, like high-yield savings accounts, US Treasury bills, money market funds, or CDs. These investments are often insured or backed by the government, providing a sense of security. However, going all cash in fear could be the worst move according to Boneparth.
Fixed-income investments like bonds are another option, but they come with risks, even for the S&P 500, a popular long-term investment. "Warren Buffett says to invest in the S&P 500, but he also advises doing it for 10 years or more," Boneparth notes. "Risk and reward go hand in hand."
How to Reduce Risk (Without Pulling Out)
If investors are feeling apprehensive, there are ways to manage risk without abandoning the market entirely.
Start by building a substantial cash reserve – preferably enough to cover three to six months of living expenses. This provides a safety net for emergencies or opportunities without touching your investments. Once you have a healthy cash reserve, diversify by allocating to various low-risk cash alternatives.
Another smart move? Rebalance your portfolio. Adjust your mix of stocks, bonds, and cash to align with your goals and risk tolerance. This might mean taking advantage of discounted stock prices to buy more (known as "buying the dip").
The Bottom Line
Industry experts agree that calm and measured decision-making is crucial during volatile market conditions. "Investing isn't about picking the perfect stock," says Boneparth. "It's about doing the boring stuff consistently over a long period of time. That's what makes it hard."
Maintaining a defensive posture while being informed and adaptable will help you navigate these uncertain times.
- Douglas Boneparth, a financial planner, urges investors not to panic during volatile markets, suggesting that the smartest move is to pause and plan.
- Catherine Valega, another financial planner, explains that working with advisors can help shape long-term investment plans, setting the guardrails like a GPS for one's financial life.
- Boneparth advises against going all-cash in fear during turbulent markets, suggesting that fixed-income investments like bonds come with risks, even for long-term investments like the S&P 500.
- To manage risk without abandoning the market, Boneparth suggests building a cash reserve and diversifying investments, while also recommending rebalancing a portfolio to align with goals and risk tolerance.
- Expert consensus is that making calm and measured decisions during volatile market conditions is key, with Boneparth stating that successful investing is about doing the boring stuff consistently over a long period of time.
