We asked the members of Forbes Finance Council what every investor should consider before making significant changes to their investment portfolio. Their best answers are below.
1. What is your portfolio’s purpose?
One thing I feel every investor should consider before making significant changes to their portfolio during times of volatility is to remember the purpose of their portfolio—they are investing to achieve their goals within their respective timeframe. The markets will go up and they will go down, but over time, the pluses and minuses average out to our expectations. – Amir Eyal, Mylestone Plans LLC
2. Has the macro market phase shifted?
Volatility should not cause one to change strategy. That would be evidence that one was too deep in that investment. The only reason to change strategy is if the macro market phase has shifted, such as a transition from a bull to a bear market or from a bear market to a sideways market. The key is to move slowly and ask if the phase seems exhausted and if the fundamentals have shifted. – Felix Hartmann, Hartmann Capital
3. Will you miss a market rebound by changing now?
Changing things up when the market is volatile is an unwise choice that can cause investors to miss bull markets and rebounds. Markets tend to rebound quickly and with more vigor than when they pulled back. The biggest risk we face as investors is pulling out of the market and letting our fears, rather than data and logic, control us. – Roxana Maddahi, Steel Peak Wealth Management, LLC
4. Are you just following the crowd?
Macro market movements are temporary, and over history, holding long-term outperforms. In fact, while tough, it’s good to buy when the market dips. What investors should be wary of if investing in individual companies are significant fundamental changes in those businesses. For example, Blockbuster and Lehman Brothers were great stocks at one point, but things can change quickly, especially now. – Carlo Cisco, SELECT
5. Have your goals changed?
Investing in long-term goals requires the development of a plan. Once goals are set, an investment strategy is developed to support achieving those goals. Investing entails volatility—no risk, no return. The investment strategy is built in anticipation of volatility, not in reaction to it. If you know all of this going in, why on earth would you need to change strategy midstream? – Erik Christman, Oxford Financial Partners
6. Are you doing this out of fear or anxiety?
If the changes you’re contemplating are part of a plan that you put in place when the market was stable, proceed. If the changes are in response to fear, anxiety or other strong emotions you’re feeling as a result of volatile market conditions, pause. Go outside, take a walk to calm your mind, and then call a financial advisor who can talk with you objectively about the changes you have in mind. – Sandi Bragar, Aspiriant
7. Are you being proactive or reactive?
Ask yourself if you’re being proactive or reactive in your decision to sell. Stocks drop and spike often. If you feel as though your decision to sell is an immediate reaction to a sudden drop, take a moment to do some research. Review the company’s sales history and listen to their latest quarterly conference call. Spending a little time to review the stock will help you make a proactive decision. – Jared Weitz, United Capital Source Inc.
8. What can you afford to lose?
Timing the market is incredibly hard, especially if you are not managing your investments full-time, 24/7. If you are worried about volatility, figure out what you can afford to lose versus not, then take what you can’t and put it in the safest thing you can find to wait out the storm. However, realize that all things have risk, and “safe” may just be less of a loss versus where you were. – Aaron Spool, Eventus Advisory Group, LLC
9. How long is your time horizon?
It’s important to remember the purpose of the account. If the intent has a longer time horizon, you have more time to weather volatile markets. If you need the monies in one year, you don’t have time to take the risks, as you know the money needs to be there. The purpose of the money within your financial plan should drive investment change, not the actual markets that we cannot control. – Meredith Moore, Artisan Financial Strategies
10. Are you sticking to your overall game plan?
It all boils down to developing the right asset-allocation strategy and then sticking to it. When you don’t develop the right asset-allocation strategy and play by the market movement you are bound to lose unless you are a serial daily trader. You should also assign the timeline for the investment holding and a loss limit. Then, simply stick to your game plan and you will be a winner! – Neil Jesani, BeamaLife Corporation
11. What is the risk level of the investment?
Obviously, the last thing you want to do is lose money in the stock market. Even though higher-risk opportunities may look enticing, you can lose money fast. Look into low-risk investments, such as energy companies. You may only make 5%, but any ROI is better than nothing—or worse, throwing money away. Always keep your long-term goals in mind when you think about diversifying. – Jeff Pitta, Medicare Plan Finder
12. Are you trying to ‘get even’?
During volatile periods, investors feel the pain of a loss more deeply than they enjoy the joy of a gain. It’s a behavioral insight we call “get-evenitis,” which is the concept of “I will sell when the price gets back to where I bought it.” This is a trap to avoid, because every day that you decide to hold a stock, bond or investment that has a paper loss, you are actually making a decision to buy it. – Sonya Thadhani Mughal, Bailard, Inc.
13. Are you staying true to your long-term goals?
It can be very easy to panic in times of turmoil and want to change all of your investments. If you prioritize your long-term goals and stick to investments that are congruent with those goals, you should not be reactive based on market changes. Pulling money out of the market every time it goes down can be extremely detrimental to your financial health. – Jonathan Moisan, Advertise Purple
14. What does your financial advisor have to say?
Volatility can be stomach-churning for the sagest investor—but a teaching opportunity as well. It’s always wise to make sense of our own emotional reactions to market volatility. Exuberance over possible opportunities or fear over possible exposure is best shared with a trusted financial advisor—it can be empowering and educational and make us less reactive to market changes. – James Hewitt, CEO, Advisor, Angel Investor