In a volatile market, it’s critical to stick with your investment plan

With volatile markets, increasing interest rates and economic uncertainty, high-net-worth and institutional investors are rightfully worried. But having a long-term plan in place can help quell concerns, allowing investors to ride out the markets without panicking.

“It’s really important to have a plan in place, because markets are cyclical — they go up and down, as does the economy,” says Matthew A. Shannon, CIMA®, Managing Director – Investments, Legacy Strategic Asset Management of Wells Fargo Advisors. “Taking a long-term approach and having a detailed plan based on your specific needs prevents you from making rash decisions and allows you to take advantage of the opportunities down markets present.”

Smart Business spoke with Shannon about the importance of having a plan, sticking with it and staying the course through market volatility.

How can institutions and high-net-worth individuals begin to create an investment plan?

Talk to people you know and trust to find a thoughtful adviser, someone who will listen and respond to your long-term goals and objectives. The discovery process starts with difficult questions, really thinking through what you want.

It forces you to think about the future and what you’re willing to do to get there, whether that’s saving more, spending less, or making tradeoffs. What is your risk tolerance? How do you think about volatility? Answering these questions will help a professional start putting together an investment plan and a portfolio that could help achieve your goals.

How important is it to stick to the plan in a volatile market?

Some investors may panic, and there is a pressure to be concerned. Very experienced investors aren’t selling, but that doesn’t mean they aren’t worried.

If you’ve done the planning to prepare for market cycles, you need to trust in that plan, providing nothing has actually changed in your circumstances. But staying with the plan may mean rebalancing your portfolio. For example, if your plan calls for having 60 percent equities and that has fallen to 50 percent, you need to rebalance, when the cost of those equities is ‘on sale.’ If you believe in the long-term viability of the U.S. economy, it makes sense to buy when the market is low.

When you create a plan, your adviser will set the expectation that markets go up and down, that there will be recessions, and that the plan has accounted for those things. If those expectations are set, while there will always be concern, there is less likely to be panic. And with a plan that includes hedging strategies and exposure to alternative investments, an investor could actually be holding steady, or even making money, in a down market.

With a rising interest rate environment and inflation, a lot of people haven’t been through this before. It’s scary, and a cause for concern, but having a solid plan can alleviate some of the worry and get you through volatile times.

Can investors succeed going it alone?

I believe it’s too dynamic of a market to go it alone. I can go online and diagnose a cold, but that doesn’t mean I’m a professional or will get the best treatment. Absolutely anything worth doing is worth at least consulting with an experienced professional. Surround yourself with people who can help you achieve your goals and who have more knowledge than you do to help you realize your long-term goals and objectives.

A professional can help you clearly define your needs and objectives. And in some cases, an adviser can save you from yourself, talking you out of making decisions based on a gut feeling. Everyone has emotional biases that can cause them to do the wrong thing at the wrong time. When the market is down, people naturally have an aversion to loss, so they can make bad decisions. Having a plan and an experienced adviser can help you avoid those mistakes.

It could be a bumpy ride the next few years, so fasten your seatbelt. But with the help of a seasoned adviser and a solid plan in place, you can come out stronger on the other side. ●

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Matthew A. Shannon

Managing Director — Investments


For more information about creating a plan and staying the course,