Investor column: Don't panic over the stock markets
There has been a lot of volatility in the stock market recently. The market as measured by the S&P 500 is down more than 6 percent year-to-date. If you have been watching the markets lately, you more than likely have heard that we are in a correction phase at the least and a bear market at the most. When the markets swing as we have experienced so far in 2016, it is natural to worry about your investments. Some will even question their investment strategy.
There are some level-headed strategies for volatile markets.
Stop listening to all the noise out there. Turn off those financial television stations. Stay off the financial websites. Hanging on to every word on every possible scenario the talking heads can imagine will only add to your stress and encourage emotional decision-making.
Even in normal markets, listening to the financial media all day every day is just too much for most of us. One of the major reasons you work with a seasoned professional is that you can, to a certain extent, delegate the worrying to someone else. He or she should be in contact with you via telephone in most cases to explain the "noise" to you.
Stay focused on the big picture. Ask yourself how long your investment horizon is. If it's 10, 20 or 30 years, volatility that last only days, weeks or months should not affect your long-term planning. Keep in mind, the S&P 500 has delivered an average annual return of 11.41 percent since 1928. These years included the Great Depression, the bear market of 1987 and our recent Great Recession.
Control your emotions. Volatility is quite stressful, and it may be tempting to bail from the stock market during these times. Trying to time the market is just plain foolish. Picking when to exit the market and when to reenter is extremely difficult.
Research has shown us time and time again that investors are notoriously terrible at predicting market tops and bottoms. Re
search shows that during corrections, periods of high growth often occur close to major pullbacks. I mentioned earlier that the S&P 500 was down a little more than 6 percent for the year. It was down well over 8 percent for the year until last week, when the market rallied almost 3 percent for the week. Missing those moves will dramatically reduce your long-term returns.
Stay flexible. Surviving volatility means having faith in the investment plan you and your adviser have in place. But it doesn't necessarily mean sitting passively by. It may often be the time to make strategic shifts to take advantage of new opportunities that may arise. For example, one of the main culprits for our current bout of volatility is with the dramatic decline in a barrel of oil. It has affected almost every company in that industry. This situation may create opportunities for the right investor.
One opportunity might be with the exchange traded fund, XLE that invest in the top companies in the oil and gas industry. Its dividend yield is 4.5 percent with an expense of only 14 basis points. Institutions own almost 70 percent of that fund. Your adviser's job, among other things, is to always be looking for prudent opportunities to help you pursue your goals in a changing market environment.
Pullbacks and sustained periods of volatility are stressful. They are also a normal part of a market cycle. Your adviser's job is to sort through the barrage of information and help you to make sense out of it. If your adviser has done his or her job correctly, when the market resumes its upward move again your portfolio should participate as well.
Michael T. Doll, an investment adviser with the Longboat Key Financial Group, can be reached at 941-383-2300, ext. 6, or Michaeltdoll@longboatkeyfinancial.com.
This story was originally published February 29, 2016 at 7:15 PM with the headline "Investor column: Don't panic over the stock markets ."