Well, here we are. Not only are the stocks in your portfolio down significantly this year, but due to raising interest rates your bonds (the “safe” stuff) are probably down too. And the icing on the cake? Cash is being eaten away too due to high inflation.

In my experience, this is the time when some investors abandon their predetermined investment plans and wait for sunnier days, or plow all of their money into what’s doing well today, like energy stocks (due to high oil prices). I can understand why. Watching your portfolio lose 15% or more can be stomach-churning, yet you know that you need to keep your portfolio growing, so why not buy yesterday’s winners?

I want to share some thoughts today on how to keep your wits about you in a turbulent market. I hope to do so with a good dose of humility. I haven’t lived through all of the economic crises that my clients have, so my comfort with investing is sometimes different than theirs, but I’ve been an investor through multiple recessions, a financial crisis, a global pandemic, many market “corrections,” and other scares. It’s easy to look back and say “See, everything turned out fine!” but the economy felt anything but fine at the time.

Never Invest Based on Emotion

The first point to consider is how emotions can play into investing. A virtue of the stock market is that you can see every day, in some cases second to second, what the price of your investments are, or what someone is willing to pay for your investments.

This is wonderful, because it means you can sell your investments very quickly when needed, and have cash in hand within a couple of days (try doing that with real estate or other hard assets).

On the flip side, being able to see exactly what your investments are worth each day can be a problem, especially on days like we’ve had the last few months. Day after day, you watch your portfolio value tick lower and lower. As fear and even panic set in, investors often make decisions that end up hurting them. They may shift to very conservative investments and miss out on a future recovery, invest in better performing investments (assuming that the better performance will continue), or sell short-term investments that may cause large tax consequences.

As I’ll discuss later, some changes may be warranted. But you’re usually better off putting your emotions aside.

Remember What You’re Investing For

At Hale Financial, we take a goal-based approach to investing. This means we focus on when you need to start drawing on your investments and over what length of time, then we arrange your investment portfolio accordingly. If you’re 50 years old and investing with a goal of retiring at age 65, you have time to weather the ups and downs that will likely come with the market, since your goal is so far out in the future.

Furthermore, some retirees may not realize that they need to stay invested in the stock market during retirement, otherwise they risk running out of money before they pass away. Investment allocations can certainly get less conservative in retirement, but most retirees will likely need a good portion of stock investments to last a 25+ year retirement.

Consider a Change to Your Investment Allocation

Taking a careful look at your investment holdings may be a good idea in times like these. For many investors saving toward retirement, an allocation of 65% to 80% in well-diversified stocks is not unreasonable, but what if 80% of your stock investments are all in technology stocks? Changes are likely needed in this case, or in any case where a large portion of your investments are concentrated in one of two business sectors or companies. Index mutual funds or exchange traded funds (ETFs) usually help take care of this problem by investing in all public companies within a particular country.

If you find that your portfolio keeps you up regularly at night in a state of worry, it may be time for more sweeping changes to your overall allocation. However, switching to less risky investments should be made with an understanding that the likely gains of the overall portfolio will be lower, in exchange for less ups and downs. Counseling with a trusted advisor can help give you some perspective here.