What’s your best response to market volatility?

Here’s how our professionals see it:

1. Don’t make any move out of panic
In the last decade alone, we’ve seen the Mexican peso crisis, the collapse of Barings Bank, the Asian flu, 9/11…and more.

There is always a risk of some volatility in the market. But there have also been rebounds from the extremes. Over-reacting too soon is, in itself, the biggest risk. Stay calm.

2. Have a sound written financial plan
Your ability to stay calm will be enhanced if you have a sound written financial plan in place. A solid financial plan and roadmap must be the foundation of financing your dreams. Make sure you have a process in place that keeps you on track and in line with your investment objectives.

Put it in writing. This will ensure that you and your advisor are covering all the bases.

3. Ensure that the plan is being monitored constantly
Economic and market conditions change – frequently. As well, there is a plethora of new financial products and instruments. “Set it and forget it” no longer works.Your plan must be monitored constantly – if possible, through an automatic process that doesn’t depend on your advisor being busy or not busy. In an ideal world, your portfolio should be revisited at least on a monthly basis.

4. Ensure that the plan is being rebalanced whenever necessary
Rebalancing is critical, and your portfolio should be adjusted according to current economic conditions.Your investment mix should be realigned, and replacements made, when and as frequently as possible. It’s imperative that this occur on a proactive and ongoing basis – as opposed to reactive and according to the market. Make absolutely sure this is happening. Are you hearing from your advisor regularly?

5. Don’t fall into the strategic inertia trap
Diversification strategies that may have worked well in the past are not guaranteed to work well now. Some diversification strategies may no longer be effective – your strategies must keep up with the times.A well balanced and diversified portfolio is the critical element in surviving volatility in the market.

6. Stay true to the plan
If your portfolio is being monitored constantly – and if your portfolio is being rebalanced proactively – then it becomes easier to stick to the plan. Don’t get side-tracked by dramatic events or the swings of market volatility, but trust the plan to respond to new challenges (as well as new opportunities).

Of course, if your plan is stale and your advisor isn’t monitoring it constantly and rebalancing it as needed, then you are at much greater risk and it becomes much easier to fall prey to the crisis mentality of market swings.

So the key first step right now is to take a good hard look at that plan, in the light of the points made above.


If you would like to take this opportunity to review your portfolio, please contact your closest CARP Certified Advisor.

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