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  • Matthew Avery

How should you be invested in choppy market conditions?

Choppy and volatile markets prompt investors to ask themselves if they are properly allocated for the market conditions. However, often, participant act against their own interests by making investment choices that could have lasting consequences. While there is no single right answer, there are a few things you should consider.

Do You Sell? It's important not to panic. Most experts caution against selling as a result of large down days in the market. There are several reasons. First, the balance you see in your 401k online is (typically) the value of your account from the previous market close. So, if the market is having a bad day and you choose to sell (reallocate to cash/stable value), you're effectively locking in that loss based on that day's market ending value. However, weak market days tend to be followed by strong rallies. In the case above, you would not be positioned to realize any gains from the resulting rally. For example, On April 29, the worst day for the S&P 500, the market was down 3.6% for the day. Then, five days later, you had the best day on May 4, with a market rally of 2.99%. Again, on March 7, the S&P 500 was down about 2.95%. Then, on March 9, the index was up 2.57%.

Review Your Allocations As we all know, diversity is key. It's important to have a broad mix of stocks and bonds. Generally, younger investors with longer time horizons are able to withstand more aggressive allocations which are generally more heavily allocated to equities. Older investors approaching retirement will generally have a higher allocation to safer assets such as bonds. During choppy markets, if volatility is a concern, you may want to consider increasing your allocation to stable-value or bond funds. However, Market timing is incredibly difficult for even the most savvy investors.

Resist the Impulse to Check Your Account Often, as is human nature, we get apprehensive or anxious when we see headlines of dramatic market movements. It's tempting to log into your account on a regular basis to check your balance. Remember your investment strategy for retirement should be "long-term." Therefore, day-to-day volatility shouldn't be your primary concern. By checking regularly, you are far more likely to make an allocation change in an attempt to time the market, which as stated above is incredibly difficult.

Seek Guidance As always, if you're unsure of your investment strategy, you should speak with your personal financial advisor, or the advisor for your retirement plan. RPA and its employees are not registered financial advisors and cannot give financial advise. The information contained here is for general educational purposes only.


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