Managing Your Emotions

With all the turmoil in the markets right now it is hard to stay objective about your finances and avoid panic. The media doesn’t help with all the talk about the Great Depression and the recent presidential election that created a lot of turmoil.

But with the falling markets and downturn in the economy, there are several opportunities to actually improve your finances and really your life. Here are some of the most prominent ones that we will be looking at for our clients as we approach the end of the year:

• Portfolio review–to identify investments that have perforned worse than the markets. In a down market the real dogs are easy to identify. We usually take the opportunity to get rid of these dogs.
• Tax harvesting–to identify mutual funds or ETFs that have capital losses that can be used to offset capital gains and/or up to $3,000 of earned income. This is a powerful technique that allows you to sell off market sectors that are expected to do poorly, but still are worth holding when a particular market sector begins to perform again. It’s an easy way to adjust your allocations, especially in the type of market we have had this year.
  
• Retirement income– we also adjust retirement cash levels to reflect your changing expenses as well as the current and estimated future performance of the markets. In a down market this is especially important. Building cash levels when the markets are performing well allows you to avoid selling at a loss when there is a market downturn.

Another benefit of a down market is that it will usually force you to evaluate your attitudes toward risk. If the big drop we recently had, made you nervous enough to lose sleep you may want to reduce your exposure to stocks. But remember selling at a market bottom is the worst time to do this. Be patient, the markets will improve over time.

If you watched the markets tumble and thought it was a good buying opportunity, you may not be aggressive enough in your stock allocations. But you should resist the temptation to buy on the dips to try and make a short term gain. Don’t put money at risk that you will need in the next three years. Invest your money don’t gamble.

With all the market hype in the media comparing the recent market drop to the Great Depression (we also had the largest market rise since the Great Depression) and the hotly contested presidential election, it’s easy to lose perspective.

Don’t give in to your emotions. Stick with your investment plan, maintain your asset allocations and you will prosper. But most of all–be patient.

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