What to do when markets are volatile?

The point here is that there are a lot of ways to look at what is going on right now. If you look at extremes and absolutes and try to find the headlines — It’s the worst decline since [fill in the blank]! — the numbers will make you crazy. To stay sane in these situations where markets are volatile conditions, most experts are advising that you stay the course and don’t panic. That’s not bad advice — when is it ever a good time to panic? — but it’s not easy in the face of a numbers-induced mania.

So here are some things to consider as volatility comes back to the market and the current whipsaw plays out:

markets are volatile

• Do look at your portfolio. Plenty of experts advise against peeking at long-term investments when the market makes short-term swings, but a peek now makes some sense.

Consider both Peter and Jack; if the daily swings in the market are so large that they worry that they can’t ride out any downturn to reach their long-term goals, then it may be time to change their allocation, take some risk off the table and give themselves some peace of mind.

That may not be the best thing from a long-term perspective, but a reasoned move now is better than a panicked move later, so if making a change will increase your sleep factor, think about how you could ease your nervous mind.

• Do the math. Yes, a $12,000 loss in his retirement savings in a day looks ugly to Peter. But he amassed much of his $300,000 account while the market was rising and he never once felt like “the market is too volatile” while it was quickly pushing his balance up.

Likewise, Jack crossed the $10,000 mark in his young portfolio with significant help from a market that was returning more than he expected. The returns on his investments are still much higher than he would have expected for the few years he has been setting money aside; he would have been happy with returns closer to historic norms (10 percent in large-cap stocks), so the only problem he’s really having right now is that he hates to see returns “normalize” because that means the froth is being removed from his cup that had been running over.

• Don’t fight the machines. A huge chunk of Wall Street trading is triggered by machines that are trying to outmaneuver competing computers. There’s no denying that market swings can be caused by this kind of trading, and the fact that Monday’s decline saw so many Dow stocks falling large percentages in lock-step could signal that it was more computer-driven than money managers making conscious decisions to get out.

Your goal isn’t to beat the market for a day or a moment, it’s to capture the long-term trend of the market. Trying to win minute by minute is a pretty sure way to lose over time.

• This isn’t a test of the market, it’s a test of your nerve.

The market has no emotions. It does what it does. Steep drops, corrections, downturns and bear markets haven’t been repealed.

If you are honest with yourself, you always knew this was going to happen, again.

This is where you look at your plan and make sure it still makes sense. When it was delivering bigger-than-expected returns, you were sure it was working; it’s almost certainly still working now, but market conditions have changed and you have bigger account balances thanks to the long bull-market run.

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