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

"Doing nothing is a decision when it comes to investing, too."


It's been a rocky few weeks for U.S. markets. After having a blockbuster 2021, markets have been bumpy since the start of year.

It's not totally unexpected: The solid growth markets posted during the pandemic was unsustainable in the long run. Now, as external forces — from inflationary pressures to unpredictable world eventsweigh stocks down, the question becomes: What, if anything, can you do to smooth out the ride

It can feel counterintuitive, but avoiding market news can help. That's "the strategy I try to use," Khe Hy, creator of the self-improvement blog RadReads, told Grow in June 2020, during the height of the Covid-19 pandemic. In fact, he says "the best investors" have discipline to stick to their plan and avoid making rash decisions based on the news.

Here's why, and how he and other experts recommend you manage it.

'Doing something' isn't always the better choice

It can be smart to tune out the news coverage, experts say — especially if you're relatively young and not nearing retirement age.

Hy has some unique insight into dealing with bumpiness in the markets: He spent more than a decade working in the finance industry in New York. In May of 2020, he wrote a blog post titled "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 offer similar advice. "If you're doing something with your money and you're making a trade or a transaction, you almost feel like you have your hands on the steering wheel and are in more control of what you're doing. But doing nothing is a decision when it comes to investing, too," Ben Carlson, a CFA and the director of institutional asset management at Ritholtz Wealth Management, told Grow in February 2021.

Find your 'number'

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%.

How to plan for stock market downturns

Video by Stephen Parkhurst

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. Once you condition yourself for a worst-case scenario, you can more readily shake off 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.

Focus on the 'get rich slowly' path

"The slow, boring, 'get rich slowly' path is still probably the right path for the majority of people," said Carlson, who is also the author of "A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan."

"People who spend more time messing with their investments, playing and moving around in trading and potentially overtrading, eventually that catches up to you," Carlson said. "It's not a long-term strategy for most people."

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, stick to your investing plan, 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 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, for example.

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

Investing involves risk, including the loss of principal. This material has been distributed for informational purposes only and may not apply to all investors or investor portfolios. Carefully consider your investment objective, risk tolerance, and time horizon prior to effecting material changes to your portfolio or asset allocation. 

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