Investing

What 'the best investors' do when markets get bumpy, according to a finance industry insider

Twenty/20

So far, 2020 has been one of the weirdest, wildest, and most volatile years the stock market has ever experienced.

To recap: The markets hit all-time highs in February, just as the initial wave of the coronavirus outbreak in the U.S. were making news. Then, when it became clear that the U.S. had a serious viral pandemic on its hands, the markets cratered, falling about 34% near the end of March.

Since then, they've mounted a furious comeback — in fact, they recently had the best 50-day stretch in history. Then, over the past couple of weeks, the markets have slumped again

The news has given some investors whiplash. Since nobody knows what's going to happen next, the question becomes: What, if anything, can you do to smooth out the ride

"The best investors are the ones who forget they have an account — that's the strategy I try to use," says Khe Hy, creator of the self-improvement blog RadReads. Here's why, and how he and other experts recommend you manage it.

'Not paying attention is the best thing you can do'

Perhaps the best thing you can do, experts say, is to tune out the news — especially if you're relatively young and not nearing retirement age.

Hy has some unique insight into dealing with the craziness in the markets: He spent more than a decade working in the finance industry in New York, and recently wrote a blog post explaining "How to sleep like a baby (during a bear market)." Hy says that he's been able to weather three bear markets and recessions over the years by sticking to a buy-and-hold strategy. He first started investing when he was in high school, and since then, he says he's "never sold a share in his life."

Other experts agree: "Not paying attention is the best thing you can do" to alleviate your stress and anxieties about the market, says Amy Shepard, a financial advisor at the financial firm Sensible Money in Arizona.

The best investors are the ones who forget they have an account — that's the strategy I try to use.
Khe Hy
Creator, RadReads.co

Find your 'number'

But for those who struggle with their investments, particularly during times of high volatility, Hy recommends calculating and remembering your "number," which tells you how much exposure your money has to the market.

"The 'number' is your total exposure to equities multiplied by 50%," he says. That number, converted to dollars, tells you what you'd have if your investment portfolio were reduced by half. For example, if 90% of your $100,000 is invested in stocks, which is in line with what experts recommend for investors in their 20s and 30s, then you would divide $90,000 in half to get your "number," which would be $45,000, or how much you could see wrung out of your portfolio if the market were to fall by 50%.

It's a rough estimate, but "just knowing, having that number" in your head, he says, can help you rest easy when the market takes a more modest tumble. You're essentially conditioning yourself for a worst-case scenario, so you can easily shake off more mild market drops.

Figuring out your number can also help you gauge your risk tolerance and help you find a portfolio allocation that will help you reach your goals and still stay calm when the market is rocky.

While Hy's tactic may be useful, other experts say that perhaps the easiest, most effortless way you can head off your instincts to panic during periods of volatility is to simply look the other way — at least for a while. 

Have a plan and stick to it

If you can't help but to keep an eye on your portfolio, Shepard says, log in with this mantra in mind: "Stick with your [financial] plan." Checking in doesn't mean you have to take action — panicked moves are only going to hurt your chances of recovering alongside the market. 

And if you don't have a financial plan, it's never too late to make one to help you reach your goals. Shepard recommends speaking to a financial advisor "who can answer your questions and calm some of your stress."

VIDEO3:0903:09
How 'stillness' can bring financial success

Video by Jason Armesto

If you just can't seem to peel your eyes away from the financial news or stop sneaking peeks at your 401(k) balance, though, you may want to take baby steps — keep your long-term goals in mind, and focus on what you can control, which is your own behavior, tendencies, and instincts.

Perhaps the best thing you can do to make sure you're not up all night worrying about your portfolio, Hy says, is to start thinking about how you can channel your reactions in a more positive direction. Remember, for example, that dips and drops are part of the market cycle and they can be an opportunity to buy and take advantage of dollar-cost averaging.

"Get out of your own way," Hy says. "Remove your worst instincts and anticipate when those instincts will come."

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