Planning In Times of Volatility

As of writing this, the stock market is down about 10-20% depending on the index you’re looking at. Unfortunately this happens from time to time when investing and we have little control over it. Fortunately though, we do have control over many aspects of our lives outside of the stock market. In fact, when faced with market volatility and some down days (weeks, months or even years), it’s important to remember your principles and take advantage of these moments. This quick post is to remind you what to do when uncertainty is staring you in the face and every headline in the media is telling you that the world is coming to an end…

Stay the course

When faced with tough times, it’s sometimes best to stick to your long term plan. I’ll use myself and Branson Financial Planning as a prime example. I’m writing this content for two reasons: 1) help consultants make better financial decisions and 2) get more people to my website for hopefully more clients. Number two will take time. LOTS of time. Lots of time writing content and generating noise to get my voice heard and message resonating with people. I know that good things take time to grow. It might take me months to get the amount of eye balls on my content that I want. And that’s ok, but I have to be willing to put in the time and effort to make that happen.

The same principle applies to investing. You have to be able to withstand the down years to make it through to the good years. And ooohh man have we had some GREAT years recently with double digits gains in almost every year since the market bottomed out in 2009. Don’t forget that sometimes it’s darkest before the sun comes out: stick to your principles and stay the course!

Rebalance into ‘the pain’

Are already in or near retirement? Or maybe you just don’t have the cash flow at the moment to contribute into your retirement accounts? That’s ok. You can still take advantage of the low prices the stock market is bringing by rebalancing your accounts. What’s rebalancing you ask? Rebalancing, simply put, is selling your winners and buying your losers. Or in other words, selling high and buying low. Whenever there is short term volatility, you typically have some winners and some losers in your portfolio (that’s how diversification works and if ALL your holdings are down the same during volatile times, you MIGHT not be as diversified as you think). This sounds obvious, but not everyone actually does this. It’s only human to want to hold onto your winners (I mean, they’re winners after all) and sell your losers. But in reality that is the opposite of what you want to do in these times.

Harvest those losses

This is similar to rebalancing in that you are targeting positions in your portfolio to maximize your losses to potentially offset your gains. This is only applicable to your non-retirement accounts, but does gives you some extra juice in your returns over the long term. 

put rules in place for times like these

If you’ve seen the BFP investing principles, you know that we are not market timers. Nor do we think active management can outperform the indices long term. Sticking to your globally diversified portfolio long term is a sound, tried and true strategy. With that said, you SHOULD have rules in place for these times and one of them could be the ‘deploying’ of cash on the sidelines in market volatility. For example, you could have a rule of “I’ll always have 12 month of net income in cash in savings. But if the market is down 15%+, I’ll use 6 months of cash to get in at low prices”. You might still consider that market timing, and I wouldn’t argue with you, but if you’re able to stick with this plan long term, all the power to you. The key being STICKING WITH THAT PLAN LONG TERM. Keeping an arbitrary amount of money on the sidelines is never the way to go and this is an opportunity to rehash a plan for your cash.

RSU Compensation

Do RSUs make up a large chunk of your taxable income? Quite common and unfortunately you’re left in a tough position when your company’s stock tanks and you were relying on the company stock for income at a particular level. Is this a time for you to negotiate a new grant of RSUs? This might be a great opportunity to knock on your manager’s door and ask for a raise. 

stock options

Did your company grant you stock options? This is an excellent opportunity to reevaluate your plan to exercise your options. A lower stock value means a smaller spread, which is potentially less income to you at exercise time. Make sure you’re making the best decision for your options in a down market.

Reevaluate your cash position

Does your cash position feel comfortable to you through tough times? This is a wee bit independent of the market, but I’ve seen households reevaluate the amount of cash they have in checking /savings accounts during times of market volatility. Sometimes a down company stock means layoffs and a brief period of relying on that rainy day fund. I hate writing that and you might think I’m heartless thinking that YOU would ever be laid off, but unfortunately I’ve seen it many times. Make sure you’re thinking about your cash levels.

Are we connecting our money to our values, goals, and beliefs?

Last, but certainly not least: do your investments, money, cash, your gold bricks stuffed in your walls, your crypto, your money stuffed in your mattress, whatever it is; does it align with your goals, objectives and what you’re really trying to achieve? I’m always a fan of connecting our money to your goals and sometimes we don’t even know what those goals are. Make sure you’re making decisions with your money that truly align with your end game goals.

Are we connecting our money to our values, goals, and beliefs?

Short term volatility happens. That’s investing. It’s up to us to decide how we’re going to react to it. That doesn’t mean panic or sell. That doesn’t mean ditch your principles when down. In fact, this is when you lean into your principles. This is when we reasses ourselves and ensure that we’re making the best decisions for our own circumstances. If you’re reading this in bear times, I wish you the best of luck and as always… I’ll see you out there!

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