How Market Volatility Affects Us
Stock market turbulence may influence your decision-making in helpful or harmful ways. It is natural to feel some level of anxiety during tumultuous markets. At times like these, many of us behave in one of two ways. The first is: “I do not know what to do. I feel stuck.” So, we put our heads in the sand and ignore everything (referred to by behavioral scientists as the “Ostrich Effect”). The other reaction is: “I need to do something right now, immediately.” We want to take action — either because we want to take advantage of opportunities, or because we want to make sure the volatility does not hurt us.
The fact is, there is no one correct way to behave during times of volatility. Everybody has their own needs, their own appetite for risk. If you do nothing, you could lose out on growth or — even worse — fail to rebalance your portfolio. In 2008, for example, many investors who had the ready cash to take advantage of the right buying opportunities, and did so, were well rewarded. But if you just stayed in cash and did not budge for five years, you may have lost out on a lot of growth potential.
It is also true that many investors suffer from being overly reactive. Rather than staying the course they had established, they run the risk of continually buying high and selling low, essentially churning their own portfolios. It can be hard to stay focused when you read financial headlines and see others making moves. A herd mentality can easily set in.
In times like these you have to think things through: “Is this something that will truly affect my goals, or is this something that just feels like it will affect my goals?” That is why having a trusted thinking partner — a spouse, advisor or another professional, for example — can be helpful, because it can keep you from taking action in fear-driven ways. Ask yourself and your collaborators: Are your potential actions based on the realities of your portfolio, and what are your investments intended to accomplish for you?
To get a better sense of who you are as an investor, consider your answers to these questions, which are part of Merrill Lynch’s Investment Personality Assessment:
- When it comes to your family, are you confident that there will be enough financial resources for the rest of their lives?
- What about the rest of your life? Do you think you will have enough financial resources for everything you want or need to do?
- How about supporting your lifestyle? Does providing for those needs affect how you invest now and in the future?
Exploring these and other questions about who you are as an investor can help remind you of your greatest priorities and how they may relate to each other. Getting a sense of this larger picture can help you focus on working toward the goals that matter most to you.
For more information, contact The Menashe Morley Group in the Rancho Santa Fe office at 858-381-8113.
The Menashe Morley Group, serving the community for over 30 years: David Menashe is a Senior Vice President and Wealth Management Advisor, and Bruce Morley is a First Vice President and Wealth Management Advisor and John Naviaux is a Financial Advisor for Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Past performance does not guarantee future results. Investing involves risk, including possible loss of the principal value invested.Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) and other subsidiaries of Bank of America Corporation (“BofA Corp.”) “Merrill Lynch” refers to any company in the Merrill Lynch & Co., Inc., group of companies, which are wholly owned by Bank of America Corporation. Investment products: Are Not FDIC Insured, Are Not Bank Guaranteed, and May Lose Value.
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