The recent sharp market drop poses a difficult question for investors: what should I do? Faced with declining portfolio values, it is a natural instinct to want to react and protect investments from further market declines. The short answer to this question is to act calmly and rationally. Prudent investing is about cool-headed decision making. During times of market volatility, investors should focus on their time horizon and asset allocation. Good investing involves deciding on a long-term strategy and sticking with it.
History has demonstrated that sources of market uncertainty are always different. If we can rely on history, short-term panic envisions a doom-and-gloom scenario followed by stabilization and eventual growth. In times like this, global markets may sell off. Stocks and bonds will re-price, and economic growth is likely to diminish. Recall the Great Recession of 2008-2009 then fast forward to the end of 2019. That ten plus year period saw the longest bull market in U. S. history.
Although some volatility is an inevitable result of investing over market cycles, investors should maintain a diversified portfolio of stocks and bonds in accordance with their time horizon. Knowing when you plan to tap into education savings and your personal risk tolerance should guide your investment choices. This is one reason target enrollment portfolios are popular - because they periodically shift diversified portfolios to less volatile asset allocations as the projected use date approaches.
In the current situation, investors should reassess their tolerance for market risk and refocus on their long and short-term goals. Act calmly and rationally, and if you are uncertain about what to do, consult a financial expert – a trusted advisor or consultant – who can help you navigate the volatility.