The recent day-to-day wild ride of the markets can make any investor nauseous. With each breaking news headline, the market can swing from a severe downturn to a quick surge. That’s because investors don’t like uncertainty and nearly everything about COVID-19 is uncertain. Unfortunately, the coronavirus outbreak is likely several months from containment and health experts warn we need to prepare for a second wave, which likely means market volatility won’t slow down anytime soon. Some investors might be having a difficult time coping with the markets, but with a solid financial plan in place, investors can reframe this mindset and instead, look to this volatile market as full of opportunities. 


Viruses cause the stock market to react

Historically, viruses have caused the stock market to react—and sometimes to overreact.  The market fell during the height of viruses such as SARS, Zika and Ebola, but subsequently and swiftly the S&P500 went on to recover. But, the unprecedented feeling of uncertainty around COVID-19 is driving the markets, and it can be a scary time to investors.

Knowledge is power, and now that you know that the uncertainty of COVID-19 is causing the market to react, you can start to take a deep sigh of relief. 

Market downturns are very normal, and although we haven’t experienced exactly this, we have experienced market swings like this in the past. There have been 26 bear markets since 1926. The average pullback was about 35%, and the average recovery time was only 299 days. This is important because often an investor’s response to a volatile market is to make financial moves that cause them to “buy high and sell low” – precisely the opposite of what you want to do.


Market volatility is your most substantial investment cost

We’ve all heard the phrase “if you fail to plan, you plan to fail.” Having a solid financial plan gives you an anchor that allows you to keep in mind the purpose of your money so you can choose appropriate investments to provide you with financial security in your retirement. 

Often, the reason investors panic sell is because they don’t have a plan for market corrections as we’ve just experienced. The markets will likely have more dips and surges before it eventually stabilizes. Bear markets typically don’t last as long as bull markets, and while no one can predict what the markets will do, history has shown us that the markets do recover. 


Investment moves during a volatile market or downturn

While there is no perfect investment, developing a holistic financial plan is an excellent place to start before making any investment decisions. A holistic plan examines all financial aspects of one’s life and includes investments, 401(k)s, mortgages, tax strategies, health care, long-term care and similar.

Once you have a holistic plan in place, then you can look at your investments. It’s important to rebalance your portfolio, so your investments are tied back to your financial goals. If you’re not planning on retiring for 15 or more years, you want to make sure your portfolio is adequately diversified and then wait it out.

If you’re within 10 years from retirement, you might start looking at rebalancing your portfolio to provide you with more conservative investments that come with a guarantee or aren’t tied to market performance.

In this particular market, opportunities do exist. With historically low-tax rates, this is one of the best opportunities for a Roth conversion (converting a traditional IRA to a Roth IRA), we might see in our lifetime. But it’s important to weigh your options and understand if this move is the best one for your personal financial situation. 

With the right mindset and a customized financial plan, you may find it easier to cope with this ongoing market volatility. And to begin looking for opportunities.


Skip Johnson is a founding partner of Great Waters Financial in Vadnais Heights.

Investment advisory services offered through AdvisorNet Wealth Management (AWM). 

Great Waters Financial and AWM are not affiliated. Insurance products are provided by Great Waters Financial, a Minnesota insurance agency.

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