NAVIGATING MARKET VOLATILITY: PITFALLS TO AVOID AND THE VALUE OF A CERTIFIED FINANCIAL PLANNER? PROFESSIONAL

Market volatility is an inevitable part of investing. While fluctuations can be unsettling, they also present opportunities for disciplined investors. Market volatility is often the price we pay for the opportunity to obtain better portfolio results in the long-term.? The key is to remain focused on long-term financial goals and avoid common mistakes that can derail progress. Working with a Certified Financial Planner?(CFP?) professional provides valuable guidance, ensuring investors make informed decisions and stay on track despite market turbulence.

• Understanding Market Volatility:

Market volatility refers to the rapid and unpredictable movement of asset prices, often influenced by economic data, geopolitical events, or investor sentiment. While downturns can be stressful, they are a normal part of market cycles. Long-term success in investing depends not on avoiding volatility but on managing emotions and avoiding reactionary decisions; a key factor is to have an investment management strategy that aligns with your risk tolerance, goals and objectives and stay committed to it, even during volatile times.

• Pitfalls to Avoid During Market Volatility:

1. Emotional Decision-Making:

One of the biggest mistakes investors make during periods of market uncertainty is letting emotions drive their decisions. Fear and panic often lead to selling investments at a loss, while greed may cause investors to chase risky assets during market highs.

It is very easy to lose sight of the big picture and what needs to be done long-term, especially with a news cycle that alerts and updates us with 24/7 coverage, sometimes with nothing more but sensational information taken out of context or trying to sell you the best “one size fits all” solution for your portfolio.

However, it is very important to take a deep breath and look at your long-term goals. It all goes back to understanding and being realistic about your risk tolerance and capacity. Knowing the kind of risk you’re comfortable with will help you understand what to expect from your investment management approach and stay calmed and committed to it despite the twists and turns the market may take.

A client who had recently started to work with me saw his portfolio drop significantly during a market downturn. In a state of panic, he considered selling his holdings to avoid further losses. However, after we discussed it and ran some projections of what that would do to his portfolio in the long-term, he decided to stick to his long-term strategy. When the market recovered, his portfolio rebounded, reaffirming the importance of patience and discipline.

2. Timing the Market:

Attempting to predict market movements is a losing strategy. No one can consistently time market highs and lows with accuracy. Exiting the market during downturns and re-entering when conditions improve often results in missing critical periods of recovery.

Research shows that missing just a few of the best-performing market days can significantly reduce long-term returns. Investors who remain invested through market cycles tend to fare better than those who attempt to time their trades.

3. Ignoring Portfolio Diversification:

A well-diversified portfolio spreads risk across various asset classes, reducing exposure to any single investment's performance. During market downturns, diversification can help mitigate losses and stabilize returns.

As the old saying goes, don’t put all your eggs in one basket! Just because an investment has been fruitful so far doesn’t mean it always will be. Diversifying will not necessarily improve your returns. People are always looking for the next best thing but we don’t know for certain what it will be; that is why we diversify; diversifying gives us a better chance to take advantage of investments with upside while preventing us from making panicked decisions when markets experience dips in performance.

Before we started working together, a client of mine had most of her retirement savings in a single industry. When that sector faced a downturn, her portfolio suffered substantial losses. When we started working together, we diversified her investments across stocks, bonds, real estate, and alternative assets, reducing her overall risk exposure.

4. Overlooking Asset Allocation Adjustments:

Asset allocation should align with an investor’s risk tolerance, time horizon, and financial goals. Market fluctuations may cause portfolio imbalances, making periodic reviews essential to ensure an appropriate allocation.

A CFP? professional can help rebalance portfolios, ensuring investors maintain their target allocation and risk level while taking advantage of opportunities that arise from market movements.

5. Reacting to Financial Media Sensationalism:

News headlines often amplify market fears, leading investors to make hasty decisions. While staying informed is important, basing investment decisions on short-term media reports can be detrimental.

Investors should focus on long-term financial plans rather than short-term market fluctuations. A CFP? professional helps filter out noise and provides data-driven strategies that align with an investor’s goals.

6. Neglecting Emergency Funds:

Having an emergency fund ensures that investors don’t have to liquidate investments at a loss during downturns. Market volatility underscores the importance of maintaining a financial cushion.

A CFP? professional helps investors build a safety net, ensuring they can withstand financial uncertainties without jeopardizing their long-term investments.

7. Failing to Reassess Risk Tolerance:

Market downturns can reveal an investor’s true risk tolerance. If market fluctuations cause undue stress, it may be necessary to reassess investment strategies and risk exposure.

After experiencing significant anxiety during a bear market, a prospective client came to me wanting to reassess the allocation on her portfolio; once we started working together, we adjusted her asset allocation, shifting a portion of her portfolio to more conservative investments while maintaining growth potential.

• How a CFP? Professional Adds Value During Market Volatility:

1. Providing Perspective and Guidance:

A CFP? professional helps investors stay committed and disciplined, ensuring that short-term volatility does not derail long-term financial objectives. By being an unemotional and unbiased party, they are able to offer perspective and help investors maintain confidence in their investment strategies.

2. Implementing Strategic Adjustments:

Instead of reacting emotionally, a CFP? professional helps investors make calculated adjustments, such as rebalancing portfolios, tax-loss harvesting, and identifying opportunities that arise during downturns.

3. Customizing Financial Plans:

Every investor has unique goals and circumstances. A CFP? professional develops tailored strategies that align with an investor’s risk tolerance, time horizon, and financial aspirations.

4. Strengthening Long-Term Success:

Consistent guidance and professional financial planning help investors weather market volatility and stay on track toward financial security.

• Staying the Course for Long-Term Financial Success:

Market volatility is inevitable, but it doesn’t have to be detrimental. It is OK to actively manage risk in a portfolio. However, taking risks off the table doesn’t mean taking?everything?off. You can hedge. Make sure you have rules for re-engagement in place (a defined plan for when and how you will get back in).

Staying disciplined, maintaining diversification, and focusing on long-term objectives are key strategies for financial success.

By avoiding common pitfalls and working with a CFP? professional, investors can navigate uncertain markets with confidence. A CFP? professional should continually stress-test their clients’ portfolios to make sure they stay on track for long-term success.

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[Advisory Disclosure]

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.

Nothing contained herein is to be considered a solicitation, research material, an investment recommendation or advice of any kind. The information contained herein may contain information that is subject to change without notice.? Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor.

Risk tolerance is an investor’s general ability to withstand risk inherent in investing. There is no guarantee a recommended portfolio will accurately reflect your tolerance to risk.

Neither Asset Allocation nor Diversification guarantee a profit or protect against a loss in a declining market.? They are methods used to help manage investment risk.?

Investing involves risks, including the loss of principal.? There is no guarantee that your investment will be profitable.? Past performance is not a guide to future performance.? The value of investments, as well any investment income, is not guaranteed and can fluctuate based on market conditions.?

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