Volatility is a measure of how fast and how far things move. It can cause some disruption, but it’s a natural occurrence in most circumstances.

Let’s start specifically with volatility in the market. We often talk about the “market” as a rather nebulous idea, sometimes referring to the S&P 500, bond markets, or currencies, but when it’s simplified, the market is made up of people: buyers and sellers engaging together. It’s very similar in concept to a grocery market or the farmer’s market, where the same things occur. When we experience market volatility, it’s typically a significant movement resulting from either an increase in buyers or a decrease in sellers.

Without perspective, market volatility can make us feel powerless. Either we think we have missed out when the market is going up, or we feel like we should have been more conservative and anticipated the unknown when the market is going down. While those thoughts are understandable, they aren’t helpful or accurate.

Volatility is Expected

At Servant Solutions, we encourage a different thought process. We expect the market to change over time. There’s an adage that the market takes an elevator to the bottom, but it takes the stairs back up. On average, the market trends upwards over time, though it may go through ups and downs to get there. If we choose to be steady and consistent in our approach over the long haul, regardless of the daily shifts, we will see a nice return on our investment.

This approach has been extremely effective numerous times throughout history, and because of the nature of the market, we can count on its continued efficacy in the future. That should be reassuring!

Pull backs or corrections are commonly seen in the market 4-6 times per year, and downturns happen maybe 1-2 times per year. Significant movements, more like true recessions, may happen every 6 years or so. Over the long haul, these things are to be expected. We need to set aside our feelings about the ups and downs, focus on the reality of the situation, and stay the course.

For those who are approaching retirement, we recommend that you stay engaged in your investments and monitor the market a bit. However, the overall strategy doesn’t change much. Stay steady, understanding that most volatility is short term. Your withdrawal rate is steady. If you’re wondering if you should make a change, use the resources available to you! This is where your connection to Servant Solutions comes in—give us a call. Unless there is a fundamental change in your life, we’re not going to make any decisions that drastically alter the good plan we made at the start. Together, we’ll remain confident and focused.

Investing vs. Trading

Investing and trading are two fundamentally different things.

Trading is a very short-term activity, buying and selling with the hopes of a quick return. We don’t recommend setting money aside for trading if you are attached to it. You should be able to lose it all and still be okay. If you make some money trading, that’s great! But it should not be money you need for your spending or saving goals. Volatility is just as prevalent for traders, but the short-term nature of trading—entering and exiting the market quickly—makes shifts much more impactful and thus it’s more difficult to achieve positive results.

At Servant Solutions, we are focused on investing, and there’s a major difference in strategies and goals. When we invest, we’re taking a long-term approach. This is where your retirement money goes. We plan for market volatility, and our goals are long term and focused on providing long-term value. Investment funds are built with steady contributions and patience over time.

Market Volatility Truths

Market movement is part of investing. If you’re going to invest, ups and downs are the price of admission. The ability to weather the movement without abandoning your strategy is an integral part of investing.
Sticking with your plan is vital. Decisions based on fear or greed are almost never good decisions. Instead, focus on making consistent decisions in the midst of volatility. Historically, market issues work themselves out. Stick to your plan.
Diversification can help with balance. Stocks and bonds aren’t perfectly correlated, and a diversified portfolio can result in smoother navigation of the shifts in commodities and trends. As some investments decrease in value, others will help balance them.

Takeaways

Stick to the plan, and know that market volatility will come.
Don’t try to time the market or make reactionary decisions, but do be aware of what’s going on and be intentional with your actions.
Maintain a long-term view and stay focused on your goals.