For most people, investing can feel like a long drive down the highway. The sun is out, the road is flat, the music soothing. Even at 70 miles per hour the ride is uneventful.
Until, of course, you hit a pothole or enter a rough stretch of pavement. Your trip can go from a snooze to panic in a split-second, easily.
We react to these moments, usually, with the practiced calm of an experienced driver. Drop your speed a touch, sit up, and make sure you have a good grip on the wheel. If things settle down, back up to 70. If not, go slower still.
What we tend not to do in these situations is overreact. No slamming on the brakes, no screaming, no erratic turns of the wheel. We know that rash decisions in the heat of the moment can end badly. You could end up in a ditch, roll your car, or crash into other drivers around you.
The price of overreaction while driving is drilled into us from years of experience. Keep cool, assess, and resume course if possible.
Investing for the long term is really no different. We have had a long run upward in the stock markets. And now we have hit a rough patch of road. Interest rates, economic uncertainty, the threat of a trade war, and global tensions have investors on edge. But like highway driving, the real risk is not the bumps themselves, it is how we react to them.
Steady hands
Maintaining world peace is paramount, of course, regardless of how the markets are doing.
Along with such appalling headlines comes market volatility such as we have not experienced in some time. And that creates an unexpected danger for long-term investors.
Like with highway driving, the real risk of a volatile stock market is not the volatility itself. Rather, it’s our reaction to volatility that matters.
Market cycles are nothing new. Think back to 2008, 2020, or 2022: each time, fear spiked, but those who stayed the course saw their investments recover and grow. Investors who pulled out during downturns often locked in losses, missing the recovery that followed. The key is focusing on your long-term strategy rather than reacting to short-term noise.
Historically, the stock market has always trended upward over time, despite temporary declines. Selling in a panic is like slamming on the brakes at high speed… it often leads to regret. Instead, consider a steady, strategic approach to weathering the turbulence.
Look over your portfolio for incremental moves that make sense. A positive step is to talk with your financial advisor and decide if the level of risk you are taking is still appropriate to your goals.
No economic downturn lasts forever, just as no market rally lasts indefinitely. The interest rate cycle will take its course, as it has many times before and will again. Inflation can be managed over time.
As for your investments, take the time to prudently review your choices. You will be much better off making those calls in a calm, rational manner. Eventually, the road will be smooth once again.
Now is the perfect time to review your portfolio. If you’re feeling uneasy, schedule a conversation with your financial advisor to ensure your investments align with your risk tolerance and long-term goals. A steady, well-thought-out financial plan will keep you on track, no matter how bumpy the road gets.
