Market declines in China. Plummeting oil prices. Upheavals in European markets. Brexit. When the financial news isn't exactly stellar, it's easy to witness the effects on the market... and it's easy to feel concerned, worried or even a bit panicked.
Before you react to stock market drops, stop for a minute and regroup. Instead of reacting quickly, consider these four things to do when the market takes a tumble.
Step 1. Simple (Yet Valuable) Investment Guidance: Breathe
Consider that CNBC recently described January, 2016 as the "worst start to a year in more than a century" (as did Market Watch, the Financial Times, CNN, and the list goes on). Pretty strong language, and definitely a headline that has the power to grab any investor's eye... and start those nervous butterflies in your stomach to fluttering.
The key here is that your attention was grabbed by these doom and gloom headlines, because that's exactly what they were created to do. It's so easy to get caught in the hype; after all, the financial media pays people to come up with attention-grabbing headlines that'll get you to click on their links.
Don't fall for it. Hype is exactly the right word to describe these tactics. Instead of reading and panicking, take a deep breath. Relax. Take a step back. When you're feeling less anxious, give your trusted wealth advisor a call.
Step 2: Financial Strategies: Take a Minute to Reassess
Sit down with your wealth management advisor to review your accounts and assess the impact the market drop has had on your investments. If your portfolio is properly diversified, chances are that you'll experience less impact than investors who've focused too heavily on one asset class. That's because diversification is a risk management technique. By balancing your investments across a wide range of asset classes — including thousands of individual securities — you're taking important steps to mitigate your exposure to risk.
Step 3: Explore Your Asset Management Solutions
Work with your wealth advisor to review your portfolio's asset allocation. If your investments mostly weathered the storm, then your allocations may be on point. If not, it's time to reassess and rebalance.
Making adjustments will ensure proper diversification and help you stay on track within your comprehensive financial plan.
Step 4: Financial Strategies: Go Shopping
One potential positive outcome of market declines lies in buying opportunities. If you've been thinking about adding to your portfolio, don't get hung up on the idea of "buying at the bottom" as there's no way to predict the bottom with any accuracy. Your wealth advisor can help you determine whether making additional investments fit into your financial strategies and your long-term, comprehensive financial plan.
The most important take-away? Don't get caught up in the media hype. Headlines that inspire panic also inspire more views — never forget that the financial media is in the business of drawing readers and advertisers. Don't panic and react with emotion.
Instead, take a deep breath, step back, and take measured steps to mitigate your risk. Sticking to your long-term plan, rather than reacting to every market up and down, is key.