Page 35 - Flathead Beacon // 1.27.16

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FINANCIAL CORNER JESSE RIGLER
BEST RESPONSE TO VOLATILE MARKETS? STAY CALM
IN RECENT MONTHS, STOCKS HAVE fallen sharply from their record highs, with one-day drops that can rightfully be called “dizzying.” As an investor, what are you to make of this volatility?
For one thing, you’ll nd it useful to know the probable causes of the market gyrations. Most experts cite global fears about China’s economic slowdown, fall- ing oil prices and anticipation of a move by the Federal Reserve to raise interest rates as the key factors behind the stock market’s decline.
On the other hand, the U.S. economy is still doing fairly well. Employers are add- ing jobs at a pretty good clip, wages are ris- ing, home prices are up and overall eco- nomic growth has been reasonably solid. In other words, we are in a vastly better place than in the period before the Great Recession of 2008 and early 2009, when the nancial markets bottomed out.
Nonetheless, it’s only natural that you might feel some trepidation over what’s been happening in the nancial markets over the past few weeks. So, what should you do? Here are a few suggestions:
• Expect more of the same. Be prepared for more volatility, potentially includ- ing big drops one day followed by big gains the next. Until the factors con- sidered responsible for the current vol- atility – that is, China’s slowing econ- omy, low oil prices and the Federal Reserve’s decision on rates – have been fully absorbed into the market’s pricing mechanisms, big price swings, one way or another, are to be expected.
• Don’t panic. The headlines may look grim, but today’s newspapers are tomorrow’s recycling pile. Volatility is nothing new, and the nancial markets are more resilient than you may think.
• Look for opportunities. By de nition, a downturn occurs when investors sell
massive amounts of stocks, but it actu- ally may be a good time to buy them, while their price is down. Look at the most successful businesses and their products and services. If you can envi- sion these companies still being around and thriving in ten years, why wouldn’t you want to buy their stocks at poten- tially lower prices?
• Diversify. During the downturn, just about everyone’s portfolio was a ected. But if yours took a particularly large hit, it might be because your holdings are over-concentrated in stocks, espe- cially the types of stocks that fared the worst. You may need to further diver- sify your portfolio through a mixture of domestic and international stocks, bonds, government securities, real estate, certi cates of deposit (CDs) and other vehicles. Diversi cation, by itself, can’t guarantee a pro t or pre- vent against all losses, but it can help blunt the harshest e ects of volatility.
• Review your investment strategy. Unless your goals have changed, there’s no reason to revise your long-term investment strategy, even in the face of wild uctuations in the nancial markets. Still, it’s always a good idea to review your strategy at least once a year, possibly in consultation with a nancial professional. You may need to make smaller-scale adjustments in response to changes in the economy, interest rates, and so on, but don’t aban- don your core principles, such as main- taining a portfolio that re ects your goals, risk tolerance and time horizon.
• Investing will never be either risk-free or predictable. But by taking the steps described above, you can relieve some of the stress associated with volatility and help yourself stay on track toward your nancial objectives.
Jesse Rigler is a nancial advisor at Edward Jones in Kalispell.
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JANUARY 27, 2016 // FLATHEADBEACON.COM
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