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As investors tackle stock market volatility, it is important to focus on financial planning and avoid emotional movements that could undermine future portfolio growth, experts say.
Stocks continued to fall early Tuesday after President Donald Trump announced higher tariffs on Canadian steel and aluminum. At one point, the S&P 500 fell by 10% from its February history high. The benchmark had a slight rebound by the late afternoon.
The NASDAQ composite on Monday fell 4%, the worst day since September 2022, with the Dow Jones industrial average down nearly 900 points.
However, despite recent market declines, long-term investors need to know that “volatility is part of the game.”
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Boneparth, who is also a member of CNBC’s Financial Advisors Council, said, “You’re seeing more or less whipping,” based on what Trump says every day.
Amidst the uncertainty of the market, investors need to focus on what they have control, he said.
Feelings “Don’t ruin your investment”
Panic sales during stock market dips often mean that they miss a stock market recovery as cash is sitting on the sidelines, according to research. Many investors don’t realize that good market days are approaching bad days.
For example, according to JP Morgan Asset Management, if you missed the highest 20 days on the stock market from January 1, 2003 to December 30, 2022, you reduced your total portfolio return by more than half.
“We’re looking forward to seeing you in a new way,” said CFP Edsnyder, co-founder of Oaktree Financial Advisor in Carmel, Indiana.
Advisors build portfolios based on financial planning goals, risk tolerance and timelines. If your goals haven’t changed, you shouldn’t react to a decline in the stock market, he said.
Use “safety margin” in volatility
According to Boneparth, “cash reserves” may also be suppressed amidst the volatility of the stock market.
“There’s nothing that can help you navigate a rough market that has a safe margin,” he said.
Boneparth recommends keeping 6-9 months of living expenses in cash due to higher emergency situations and “opportunities” than the 3-6 month rule of thumb recommended by many other advisors.
According to Boneparth, “silver lining” means that if you put “silver market” in stocks in the market dip, you can find a “high quality company or index” and use a portion of that cash to invest.
