Ruedi: Keep calm, focused amid market volatility

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Since the stock market was first established, it’s gone up and down (and then up and down, and up and down again). Trade wars, terrorist attacks, and viruses running rampant have had monumental effects on the stock market over the years — but what does that mean for you? And what does that mean for your retirement account?

Hopefully, you haven’t fallen victim to the hysteria and made the rash decision to start selling off your assets in a frenzy. It’s true: The stock market can be volatile in the short term, with gains and losses followed by peaks and valleys. This comes as no surprise to those of us in the financial industry; the stock market has always had a natural tendency to ebb and flow between periods of growth and periods of loss.

Over the long term, however, the stock market has been much more consistent. According to Dimensional Fund Advisors, since its inception in 1926, the S&P 500 Index has enjoyed an average annual return of over 8 percent when adjusted for inflation — meaning that, generally speaking, the stock market has experienced more good times than bad over the years.

And here’s some more good news: Investing in the stock market is a long-term game, especially when you’re investing in a retirement plan, like a 401(k), where your assets are invested in the stock market. However, there are some things you’ll want to do (and some things you’ll want to avoid) during periods of market volatility to protect your assets and keep your financial future secure.

How to react to a volatile stock market

Warren Buffet once said, “The stock market is a device for transferring money from the impatient to the patient.” And it’s true — we believe the stock market tends to reward those who keep calm in times of market downturns and maintain good decision making.

Simply put, market volatility can be uncomfortable, but staying the course can be a winning strategy. Unfortunately, many Americans don’t follow this important best practice when the market plummets. That’s a big problem for many reasons; when too many investors run to Wall Street to sell their assets in a panic, the market gets even worse — and that can lead to serious economic issues.

So, remember that if you’re saving for retirement in a 401(k) plan or similar investment-based account, you’re likely going to be a long-term investor. As such, it’s important to keep these long-term best practices in mind and avoid falling trap to short-term hysteria:

• DON’T PANIC

The first (and one of the most important) rules of thumb to remember in times of stock market volatility is to keep calm, maintain good decision making and avoid causing more mayhem on Wall Street by selling off your assets and running for the hills.

Getting out and selling your assets may seem like a clear decision in order to minimize future losses but getting back in when the market starts trending upward could be challenging and could potentially lead to missed opportunities because the same stocks could be more expensive in a bull market (growth period) than they are in a bear market (loss period).

You may not be “getting out ahead” when you sell your assets during a volatile market — instead, you’re potentially locking in your losses.

• STICK WITH YOUR PLAN

If you have a retirement strategy in place, it’s often worth it to stay the course and stick with your plan, even in times of a volatile market. If you don’t already have a plan or strategy in place, develop one — and then stick to it.

In general, if you’re a young investor with plenty of years ahead of you before you expect to tap your retirement savings, this becomes especially true. Your assets likely have plenty of time to recover from the market downswing — but only if you give them the chance to.

Instead of acting out of impulse, review your savings strategy and remind yourself that it’s normal for the stock market to experience times of growth and loss. That’s not to say that anxiety isn’t a typical emotion to experience when logging in to your 401(k) account and see a drop in value, but that’s the time that it’s essential to follow your plan.

• TALK TO YOUR FINANCIAL ADVISER

We believe financial advisers are great resources for a variety of reasons, especially during market downturns: They can help you put together a roadmap to reach retirement readiness, help you create a written retirement strategy to follow, and help you stay on course for your retirement goals over the course of your career.

Most importantly, they can help you align your investment portfolio with your risk tolerance.

This is intended for informational purposes only and should not be construed as personalized investment advice. Please consult your investment professional regarding your unique needs.

John Ruedi is a regional marketing specialist with Savant Wealth Management in Bloomington.