The recent swings in global markets have left investors uneasy. Sheryl Rowling, a financial advisor, shared that many people have been reaching out to her during the latest downturn. “Sheryl, what should I do?” is the most common question she receives.

She explains that not everyone needs to take action during market volatility. Often, the best first step is to pause and assess whether any change is necessary. Emotional reactions to short-term losses can lead to poor long-term outcomes.

Who Should Adjust Their Investment Strategy — And Why

According to Rowling, there are specific situations where changes to an investment strategy are appropriate.

Individuals who are in or nearing retirement may need to adjust their withdrawal rates, boost cash reserves, or shift to more conservative assets. She highlights the importance of managing the risk associated with the timing of withdrawals, calling it a “real” and unavoidable concern.

Investors with short-term goals, such as needing funds for a home or tuition in the next few years, should ensure they have enough in cash to avoid selling at a loss.

Those whose portfolios are overly concentrated in a single sector or asset class may benefit from rebalancing. Rowling emphasizes the importance of diversification during market swings.

Life changes like job loss, medical emergencies, or divorce may also justify portfolio adjustments. She encourages reviewing financial plans when personal circumstances shift significantly.

Staying the Course: Why Long-Term Discipline Works

Rowling advises most long-term investors to stay invested. She notes that markets have historically recovered from downturns and that selling during a dip locks in losses. “Panic selling feels like action, but it’s often the worst thing you can do,” she warns.

A diversified portfolio, she explains, is designed to absorb shocks and support long-term goals. Investors should consider whether their financial situation has fundamentally changed before taking any steps. If the answer is no, then sticking with the original investment plan may be the best decision.

John Anderson, a certified financial planner, recommends continuing regular contributions to retirement accounts during downturns. He points out that investing through both up and down markets helps balance returns over time.

He also highlights the role of target-date retirement funds, which automatically adjust the mix of stocks and bonds as the retirement date approaches.

Building Resilience Through Diversification and Price Discipline

Lim Chow-Kiat, CEO of GIC, described the 2023 investment environment as one shaped by intense uncertainty. He stated that investors must now look beyond traditional indicators and consider geopolitical events, climate risks, and regulatory changes.

Lim emphasizes “granular diversification” and “price discipline” as essential principles. He notes that some markets have not fully reflected current risks and that disciplined pricing remains critical.

In the AI sector, for instance, some companies hold high valuations that are only justified if they become dominant in the future. He stresses that each case needs to be evaluated for its potential risk and return.

GIC’s long-term capital strategy has allowed it to support early-stage climate technology projects. These investments often fall outside of traditional funding structures. The Sustainability Solutions Group within GIC’s private equity team has helped scale projects that are no longer in the lab stage but are not yet commercially mature.

Lim states that in this environment, “anchoring ourselves to our purpose and core investment principles while leveraging our strengths will be vital.”

What Financial Advisors Recommend in Today’s Uncertain Landscape

Kerry Hannon reports that markets have been impacted by new tariffs and rising economic uncertainty. Advisors are seeing concerns ranging from job security to the future of Social Security.

Lisa A.K. Kirchenbauer, a senior advisor, encourages clients to ask themselves what they are most concerned about. She emphasizes that sometimes the best approach is to take no immediate action. “Volatility is often just noise,” she says.

Lazetta Rainey Braxton advises retirees to prepare for higher prices in imported goods by keeping a “cushion account.” This reserve helps manage inflation and unexpected events, providing flexibility during unstable periods.

Anderson highlights the importance of shifting to more conservative portfolios for those approaching retirement. He suggests working with an advisor to explore strategies that reduce downside exposure.

He also points out that fixed-income assets like bonds and CDs are offering yields between 4% and 5%, making them attractive options while waiting for greater clarity.

Kimberly Stewart recommends that investors rebalance their portfolios regularly. If an allocation shifts more than 7% to 10% from its original target, she advises making adjustments to reflect one’s risk tolerance, time horizon, and goals.

Kirchenbauer offers a visual analogy for today’s environment. She compares it to skiing in flat light, where visibility is limited but the terrain becomes clearer farther ahead. She encourages investors to remain flexible and maintain focus on the long term.

Source:

https://www.morningstar.com/markets/what-investors-should-should-not-do-during-market-crash

https://www.weforum.org/stories/2024/07/how-to-build-resilient-investment-portfolio-uncertain-times/

https://finance.yahoo.com/personal-finance/investing/article/how-to-protect-your-money-during-economic-turmoil-stock-market-volatility-174937265.html

PHOTO: UNSPLASH

This article was created with AI assistance.