Last week, as the stock market, my retirement account, and my stomach were sinking simultaneously, I resurrected an old friend from the 2008 crisis and sent it to my pal Tom:
Photo Credit: Fabrice Florin, Flickr, Mill Valley, California
I affectionately call this image Bambi. Tom and I exchanged it frequently during the 2008–2009 crisis—it was our way of injecting levity into a terrible year. We felt like deer in headlights, facing daily plunges in asset markets and fresh layoffs on Wall Street and Main Street. Bambi reappeared in fall 2011 and again during the 2020–2021 Covid crisis, making its rounds within our text messages whenever despair or disbelief struck.
Can you relate to this feeling nowadays?
While this image reminds us that it’s natural to feel frozen when confronted with risk and the unknown, for me it’s also a nudge to act. Just like a deer that must move to avoid an oncoming car, taking action is the best remedy for both mental and physical strain.
Doing something in the midst of a market selloff or amidst an episode of massive volatility doesn’t mean you should necessarily sell something or buy something else. It can and should mean that you take a breather from staring at the headlights, assess your situation, and then make a plan based on what you learn.
Here’s the plan I suggest - the one I’m taking myself right now.
STEP 1: Look at the actual performance of your investments.
This past week, I’ve heard plenty of people exclaim, “I’m not even going to look at my accounts.” I get it—if you’re prone to panic, avoiding your accounts might seem wise. But having the proper information is essential for good decision making. These market moves are a prime opportunity to check if your portfolio is behaving as expected.
So, take a deep breath and open your account statements. What is the return on your whole portfolio from January 1 to today? Note, if you have cash or a money market fund sitting in an account (that’s not just to pay this month’s bills), that is part of your portfolio and should be part of your return calculations.
STEP 2: Figure out where your portfolio lies on the risk spectrum.
One easy way to estimate whether you are diversified (or if your holdings are more like the market on steroids), is to look up the current return year-to-date on the two main US stock indices. As of writing, the S&P 500 is down 11.8% and the Nasdaq is down 14.5%. The Dow Jones is down -8.5%. (Owie.)
Is the return on your own portfolio higher or lower than these stock market index returns? After a big selloff, if your return was not as poor as the stock market overall, you must have some diversification. If your return was lower / worse, you have a portfolio that is riskier “than the market” and you aren’t getting the benefit of diversification.
While stock markets have plunged across the globe, many bond markets have performed well, as has gold and a few other commodities. Some industries benefit from tariffs and risky environments, and others suffer. You’ll want to find out how your own holdings did and why.
STEP 3: Look in the mirror – do you have wrinkles and gray hair?
We might all have grown a few gray hairs this week from the chaos in politics and stock markets—but the key question is: Are you nearing retirement?
Your action plan should depend on how many years remain from now to retirement. If you are young, you have the luxury of decades ahead to accumulate investment returns. If you are close to retirement, you critically need a steady stream of returns to finance your life after you quit work. You need to factor in the length of your investable horizon to critically determine your approach to this market volatility and selloff.
Wherever you are on the age spectrum, compared to the end of 2024, you just got a 10-20% discount off of investing in the stock market. Similarly, if you have never gotten around to investing properly- whether you were just too busy or you heard the market was “too expensive” or that “valuations are too high”- this big dip is offering you a sizeable discount.
For those of us who need to accumulate more savings and investment returns in order to enjoy a better retirement, this sell-off could present a nudge to get invested.
I can’t say that adjusting your portfolio is a good or bad idea right this minute, since I don’t have a crystal ball (and have absolutely no idea what is driving Trump’s economic policy decisions on a day to day basis). What I can tell you from watching and participating in markets for 30+ years is that 99.9999% of people - including finance professionals- do NOT have the ability to time the market. Whether minute by minute or day by day, it’s very hard to identify a top or bottom so don’t even try.
My advice to you will be the same as to everyone else,…
STEP 4: Talk to your financial advisor, or for Pete’s Sake, go get one, and consider what actions you should take.
I feel the same strong way about having a good financial advisor as I do about having a good psychotherapist. It is so beneficial to have an objective paid friend who is there to have your back, help you make good decisions, and pull you out of the way of the oncoming car in times of stress.
I would advise having these kinds of discussions/questions, whether you have an advisor or you’re about to get one:
1- Is my portfolio diversified? Show me and prove it to me. If it’s not sufficiently diversified relative to my financial goals and my level of emotional distress right now, how are we going to get there?
2- Is my retirement at risk? Either way, are there steps to consider in light of my goals and recent events?
3- How should I consider investing going forward in the midst of this volatility?
What I’m doing
I have spent my entire career in finance, and I too have a financial advisor. I typically communicate my goals and risk tolerance and ask my advisor to keep me apprised of surprises or opportunities. While I watch the markets every day, I do not look at my accounts every day. That said, I too have been feeling the stress of the times and am going to take my own advice and act. After doing steps 1-4 above, I’m recommitting to Dollar Cost Averaging.
Dollar cost averaging means spreading your investments over time instead of putting (or pulling) it all in one go. By spreading your investments over several transactions, you buy at an “average” price instead of the price on any given day. This way, you don’t subject yourself to rear-view-mirror remorse. It’s just awful to sell some stocks today and wake up to see them bounce higher 5% tomorrow. It’s also awful to buy a bunch today and wake up to see stocks sell off 5% tomorrow. If instead you execute your trading and investment plan through time, you get an average price through time. It makes financial and emotional sense.
For any of us who are not retired, we should be saving and investing routinely, without thinking, just like we breathe. Whether you have investments or you haven’t started, we can use this sell-off to get (and stay) involved in investing for our financial future. Personally, over the past two years I’ve parked much of my wealth in money market funds to benefit from higher rates and manage renovation costs…and to be honest, due to my bag lady syndrome (I fear each day I will wake up with no money). While I have an excellent track record as a good risk taker and investor while managing other people’s money, I have always been extra cautious with my own. Last year I watched markets go up and up and felt each day like I couldn’t possibly invest some of my cash into the market “at those valuations.” Well, valuations just got better.
While I don’t think we have reached a bottom, I have no idea when that will happen. I do think we have higher odds of a recession, and yet again I don’t have confidence on how deep or how long a recession may last.
Therefore, I will do the wise thing – invest a little bit every week and spread my investable funds over something like a 3-6 month horizon.
Remember, action will help you feel better too, and it could definitely improve your financial outcome.