Volatility returned to the stock market in February with markets falling about 10%.

Sharp jolts like these can be nerve-wracking, even when you know that pullbacks are a normal part of long-term investing.

It’s also normal to feel anxious during sell-offs or uncomfortable as we wait and see if markets fall further.

We can’t change how we feel during volatile markets, but we can learn how to keep our emotions from affecting our investment decisions.

What’s your plan for volatile markets?

An 83-year-old investor told me recently that one of the most important lessons he’s learned over the years is not to react but to respond.

“That means having a plan and working through the plan, which after many years does not include panic selling,” he said.

I certainly encourage investors to have a plan for down markets. One part of that plan is your allocation to stock and bond funds. Bonds can buffer stock market volatility so investors who own both stocks and bonds are often better able to stay invested through up and down markets.

Your strategy is another component of your plan. A solid investment strategy that includes predetermined sell thresholds should lead you to respond to volatility in a disciplined way.

There’s another crucial part of your plan, and that’s you sticking to it. If you panic, there’s not much your allocation or your strategy can do about it. So, it’s important to identify what helps you stay calm in tumultuous markets.

Six ways to keep your emotions in check

Here are some ideas that could help you stay focused and avoid emotional mistakes:

1. Turn off the TV – You may need to ignore the news in volatile markets.

You expect the news to help you make sense of the world, but it disproportionately focuses on market declines, often using alarming terms to describe them. “Market Plunges”, “Worst Point Decline in History”, and “Why the Stock Market Is Crashing Now” were typical headlines in the midst of the recent pullback. This kind of sensationalism can stoke your fears and distract you from your long-term goals.

Years ago, an investor told me that he’d been getting really upset when the market fell. One day, his wife suggested that he turn off the TV. “You know what?” he told me. “It worked!”

2. Focus on what you know – In uncertain times, we tend to focus on what we don’t know, like how long the sell-off might last. Continue reading “How to Control Your Emotions in Volatile Markets” »


fb-4certaintiesIn uncertain times, we tend to focus on what we don’t know: will the market rally continue or are we due for a sell-off? Is a down market a routine correction or the start of a serious bear market?

It helps to remind ourselves what we do know.

Here are four certainties to keep in mind:

1. Stocks have been the best way to make money over time

We know that investing in stocks has been the best way to make money over time: from 1950-2017, stocks, as measured by the S&P 500, have gained an average of 11% annualized compared to 5.9% for bonds. 

In dollar terms, this means that if you’d invested $100,000 in stocks, your portfolio would have grown to $840,219 over 20 years.

If you’d put that $100,000 in bonds instead, your portfolio would have grown to $316,600 after two decades.

Stocks have also had gains over every rolling 20-calendar-year period since 1950. 

Stocks have also been very volatile at times, and that volatility makes it tough for investors to hold stocks long enough to benefit from these terrific long-term results. But if you can stick it out, those gains can change your life.

2. Corrections are a normal part of long-term investing

We know that corrections are part of long-term investing. The market has declined at some point during every year since 1980, but in most years it has finished the year with gains. Continue reading “4 Certainties in Uncertain Times” »


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