Planning For Ups and Downs

It's hard not to panic when markets make sudden, large moves. Greed and fear are natural human emotions that, if given free rein, can lead investors to buy high and sell low. That can be a recipe for wealth destruction. 

The time to handle market fluctuations is before they happen. Planning starts with an understanding of how your portfolio will react to volatility, and then making moves to restructure your wealth to fit your risk profile.  The fact remains that the financial markets are frequently beset by challenges.  And often (like what we are seeing in today's market) it's not a matter of if, but when. Your plans and expectations for the future shouldn't have to depend on daily fluctuations.

The first course of action is to stay calm. Which may be hard to do when you see what the downturn is doing to your investments. However, right now is the perfect opportunity to take a look at your investment portfolio to see if it fits with your goals. 

Diversifying your investments across a broad set of asset types is a central feature of your wealth planning. There are three main consideration to bear in mind when developing a sound financial strategy:

• Investment Objectives
  • What are you trying to achieve by investing? Comfortable retirement, a college education for a family member or a trip around the world?
• Stage of Life
  • The amount of time you need to accomplish your goals can have a tremendous impact on the investment categories you choose. Fluctuation in the financial markets can affect the short-term value.
• Risk Tolerance
  • Volatility in the markets can test the true risk tolerance of investors and drive home the fact that risk is an essential consideration of a sound investment strategy.

Knowing your tolerance to risk, stage of life and need for liquidity should shape your asset allocation so that you can tolerate volatility without it triggering sudden, unplanned reactions.