One of the biggest challenges facing some investors today is market turbulence. While January 2023 started on an upward swing, the market has already shown to be volatile, and this year’s gains remain unknown as fear remains steady around inflation and other contributing factors.1 Some analysts are projecting that the S&P 500 earnings will drop at a rate of 5.7% year-over-year in quarter one and another 3.7% in quarter two.1
Market turbulence refers to a state of volatility and uncertainty in financial markets, where prices of securities and other assets fluctuate rapidly and unpredictably.2 This can be caused by a variety of factors, such as economic events, political developments, natural disasters, or other unexpected occurrences.2 Volatility can be significant and difficult for some investors to face, as it can cause markets to move up and down swiftly and without warning. Volatility can often refer to both the upside and downside movement of an investment.3 While some recommendations tend to be for investors to take a defensive approach, Founder and CEO of Matson Money, Mark Matson, takes a different approach. “Even in turbulence, don’t jump out of the plane,” he says.
The up and down ride of market turbulence can lead to significant changes in the value of investments. Investors can experience sudden gains or losses, which can cause possible uncertainty and anxiety among investors, which can then further exacerbate the turbulence in the market. However, when compared to a carnival or plane ride; no matter how fun or frightening it was, the ride ends, and you get to get off. Contrarily, making quick or hasty decisions in your investment strategy like market-timing, stock picking, or pulling out of the market entirely, can cause a significant loss or destruction in an investor’s financial future. Matson recommends staying prudent and disciplined, even during turbulent times. “Investors should invest for the next 20 years, not the next 20 minutes,” he says.
Investors may try to manage market turbulence by diversifying their investments, staying informed about market trends and events, and using hedging strategies to help minimize risk. However, it is important to remember that market turbulence is a natural part of financial markets, and it is not always possible to predict or control its effects.
If you are faced with market turbulence, there are several things you can do to help manage your investments and minimize your risks:
Stay calm: As Matson reminds us, “it is never the right time to panic.” Market turbulence can be stressful, but it is important to avoid making hasty decisions based on emotions. Avoid panic selling or making drastic changes to your investment strategy.
Diversify your portfolio: A diversified portfolio can help to reduce your risk exposure to market turbulence.
Rebalance: Regularly rebalancing your portfolio can help to maintain your desired asset allocation and reduce your exposure to risk. This involves selling assets that have performed well and buying assets that have underperformed, to help maintain your target mix.
Focus on the long term: Market turbulence can be short-lived, and trying to time the market can be risky. Instead, focus on your long-term investment goals and stay committed to your investment strategy.
Get a coach: At Matson Money, advisor coaches are trained to help investors with both the mathematical and human behavior aspects of wealth creation. They can be an ally during times of uncertainty and can help investors stay committed to their long-term goals.
Market turbulence is nothing new or novel, and – as history often repeats itself – will likely be around long-term. But, the natural instinct to panic during times of volatility does not have to destroy you and your family’s financial future. With a long-term investing strategy in place, and a financial coach to help you stay disciplined, you can be empowered to weather the storm, no matter how vicious the turbulence.
This content is based on the views of Matson Money, Inc. This content is not to be considered investment advice and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision.
This content includes the opinions, beliefs, or viewpoints of Matson Money. All of Matson Money’s advisory services are marketed almost exclusively by either Solicitors or Co-Advisors. Both Co-Advisors and Solicitors are independent contractors, not employees or agents of Matson.
Other financial organizations may analyze investments and take a different approach to investing than that of Matson Money. All investing involves risks and costs. No investment strategy (including asset allocation and diversification strategies) can ensure peace of mind, guarantee profit, or protect against loss.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS
2. Financial Turbulence and Crisis. https://oxfordre.com/politics/display/10.1093/acrefore/9780190228637.001.0001/acrefore-9780190228637-e-1506;jsessionid=D0E44147E58FD3D4B873488B4E04FBF93. How to talk to clients about market volatility. https://www.investopedia.com/financial-advisor/how-talk-clients-about-market-volatility/