The Need for Financial Advisors to Guide you Through Market Volatility
Markets are volatile and completely unpredictable. Most often, difficult market situations lead you to make emotional decisions, which might not be in your optimal monetary interest. Irrespective of the fact that historically, markets have always bounced back from downturns, you can sometimes panic and make hasty decisions to curb losses. Amidst the uncertainty that fuels anxiety and triggers radical decision making even in some of the most experienced investors, it is advisable to rely on expert acumen to navigate market volatility. A financial expert can be a true guardian for your funds and ensure that you sail through the unpredictable chapter smoothly.
Here is how a financial advisor can guide you through market volatility:
- Provide a long-term view
- Keep things in perspective
- Mitigate short-term losses
- Analyze and adjust asset allocation
- Maintain adequate liquidity
- Protect savings
Market downturns in most situations, cloud your judgment. This causes you to give in to the urge of abandoning stocks during a critical period. However, even if the strategy successfully reduces your current losses, it might be catastrophic for your long-term fiscal plans. Investors who sold during the crisis of 2008-09 missed out on the opportunity to benefit from one of the most robust bull markets in history. Making the wrong investment changes could diminish your previous gains and may even wipe out the future ones. But in such demanding times, a person with a sound financial insight can help you protect your assets by applying focused market strategies. In most cases, your advisor will be able to direct you on how to stay invested and minimize your overall losses. The advisor will help you create a long-term strategy that aligns with your risk tolerance, liquidity requirements, and time horizon. This will help you pursue your goals like retirement, education planning, etc. Moreover, by offering an unbiased perspective and timely guidance, your advisor will be able to deploy strategies to benefit you in the long run.
Extreme market conditions could trigger different investment emotions. You might panic and sell your stocks, make impulsive purchase decisions, delay withdrawals, or do nothing at all. However, it is difficult to ascertain which of them is the right move at a given time. Even though historically, the decline in markets was followed by shooting growth, there have been several instances where investments remained perforated in value for a considerable time. Moreover, misleading financial news in journals and magazines could make matters worse, often leading you to lose perspective of your ultimate goal.
For example, in 2019, the Dow Jones Industrial Average exceeded 1,000 points and made headlines. But in reality, this was not as strong a position as it seemed. Also, with the COVID-19 pandemic consuming economies at the beginning of 2020, it was difficult for investors to get an outlook on how markets will respond over time. While the initial scenario was bleak, stocks picked up soon after and some stocks even performed better than before. With such confusing market dynamics, seasoned advice can bring more value. This helps you to keep things in perspective and make decisions to the best of your monetary advantage.
Financial advisors do not disregard your short-term investment accounts or only focus on the final goal. Rather, they aim to make important changes to keep things on the right path. Your advisor will review your near-term goals, discuss any possible adjustments, and deploy wise strategies to reduce losses and maximize future gains. Advisors also provide different investment options. They support you to rebalance your investments at the right time, align them as per your risk appetite, or even shift your original asset allocation.
Moreover, your guide will have access to the latest market research and knowledge, which should be beneficial to identify new investment choices that gain from lower stock prices and help assets grow.
Financial advisors aid you to analyze and adjust your asset allocation during critical market situations. This is very helpful in specific conditions. For example, if you are near retirement and experience a market crisis, it could tempt you to exit stocks. But this will cause you to miss out on the possible recovery later. Being too-conservative in your portfolio can also be risky and impact your overall savings. In such times, an advisor can help you adjust your asset allocation, analyze how it will affect your funds, and enable you to fulfill your upcoming expenses. They can help you diversify assets effectively (stocks, bonds, cash equivalents, etc.) and choose the right asset classes (small-, mid-, and large-cap). Further, with sound market knowledge, your advisor can support you to structure your portfolio to overcome future downturns.
Plummeting financial markets can impact your liquidity. This is especially worrisome if you are already retired and sustain your lifestyle with your retirement account balances. Moreover, abandoning stocks during a market downturn can significantly impact your cash on hand. In such situations, a financial advisor can prevent you from giving up long-term profitable investments, and identify new asset venues to improve liquidity. Furthermore, your guide will be able to revisit your budget and assist you in trimming down non-necessities to improve your cash flow. In dire times, a financial expert can also support you to identify the right sources for low-interest debts. This will enable you not to withdraw assets during a market downturn.
Apart from assisting you to evaluate your assets and potentially adjust them to cut losses and offer a reliable cash position, your financial advisor can also help safeguard your savings from unpredictable market conditions. For instance, in 2020, the novel coronavirus shook even the mightiest of economies. Industries suffered, stocks tumbled in value, borrowing increased manifold, investment returns weakened, and people increasingly withdrew their savings. By the end of May 2020, 14% of Americans with retirement savings had taken out money from their accounts, such as the 401(k) and the individual retirement account (IRA). The figures only increased thereon. Another 13% said they were planning to tap into their retirement funds to sustain themselves during the pandemic. In such times, assistance from a financial professional can help you find sources to sustain your lifestyle. Moreover, they can also update you on the changing rules to secure your money without incurring additional penalties. For instance, the 2019 SECURE Act mandated the age of 72 years to make required minimum distributions (RMDs) from an IRA or another workplace retirement plan. However, owing to the challenges posed by the COVID-19 situation, the CARES Act 2020 lifted the RMD specifications altogether for this year. This helped people to keep their retirement funds invested and tax-protected. It further abetted investors from selling investments when their value declined during volatile market situations.
To sum it up
By its nature, the market will always witness boom and bust cycles. However, inarguably, a downturn can be challenging both financially and emotionally. But in such situations, knowledgeable assistance from an experienced professional can assist you in navigating through difficult times. An expert will help you follow a disciplined approach, adjust your risk appetite, optimally diversify your portfolio amidst market volatility to minimize losses, and keep you steady to reach your ultimate financial goal.
With sound advice from professional financial experts, you can be in a better position when the next phase of volatility arises.