Asset Preservation Tax & Retirement Services

How to Navigate Market Volatility

By Stewart Willis

It is no secret that we are living in extremely volatile financial times. Specifically in the year 2022, we’ve seen a downward trend in the stock market due to U.S and world events. The Federal Reserve raising interest rates on May 4th caused the Dow to plummet the following day. In the first four months of 2022, the S&P 500 had its worst start to the year since 1939.

Even with the volatility, we're seeing the highest market in history with the lowest interest rate environment. We are also seeing record inflation including gas prices hitting record highs.

So how do we navigate these volatile times? How do we protect our finances? There are several strategies that I guide my clients through.

Have a Plan

Benjamin Franklin is credited with the saying that “failing to plan is planning to fail,” and that is true when it comes to your retirement and your overall finances.

Having a plan starts with budgeting, working to pay off your debt and contributing to a retirement fund. You don’t have to designate where every single dollar is going, instead, you can follow the 80/20 rule. The rule designates the first 20% of your paycheck toward investments, savings or debt repayment. It also goes toward an emergency fund that should cover three to six months of your expenses. The remaining 80% will go toward your wants and needs of anything from food to entertainment.?

There are many financial plans you can follow, and what works for your friend may not work for you. That’s why it’s important to meet with a financial advisor to turn your dreams into a foolproof, comprehensive plan.

Gauge Your Risk

How comfortable are you with risk? No matter what kind of investor you are, there is usually? going to be some risk. There are several kinds of quizzes and resources out there that will gauge your risk tolerance; I recommend this one from Charles Schwab.

Understanding your comfort level with risk can help guide your strategies as an investor. Conservative investors should minimize their exposure to risk or they will be extremely uneasy during these volatile time periods. Don’t bet more than you are willing to lose, especially if you are at or nearing retirement age.

Diversify Your Portfolio

Part of having a plan is knowing exactly where you are putting your money. Are you diversifying your investments? As the old saying goes, don’t put all your eggs in one basket. Your portfolio should be diversified in order to withstand the ebbs and flows of a volatile market.

In order to reduce your risk as an investor, your portfolio should blend different investments by spreading the wealth amongst a variety of sectors. You might consider a mutual fund, ETFs (exchange-traded funds) or real estate investment trusts. Don’t just narrow your options to what you see in the stock market.

Diversifying will spread your investments out in order to limit a great deal of exposure on a singular asset.

Diversify Ideas

Beyond diversifying your portfolio, you should also be diversifying your money management. Do you have someone you trust guiding you through volatile financial times? At Asset Preservation Tax & Retirement Services, we don’t just rely on the guidance of our advisors, we meet with money managers and advisors at BlackRock, some of the smartest financial professionals in the entire world.

We’re constantly looking for ways to diversify ideas, learn and evolve in order to do things better and provide the most sound advice to our clients.

Focus on the Long Term

The most damaging thing you can do to your portfolio is to become short-sighted on what the market is doing at this exact moment in time. Volatility in the market is to be expected, but the real mark of a successful money manager is someone who can withstand the tides.

I tell my clients to never let their emotions get the best of them. When the market is down, don’t run from it and panic-sell. Instead, run to a trusted financial advisor who will help you build a financial plan that can withstand even the highest tides.

Stewart Willis is the founder and president of Asset Preservation Tax & Retirement Services, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.