For those of you accustomed to flying in the Midwest, you know that Turbulence can happen during any flight. You don’t know when it’s going to happen, or even if it will happen during a trip, but it’s not an uncommon experience.

A similar thing is true about investing. Turbulence in the form of Market Volatility often happens. You don’t know when, or even if it will happen during a particular period, but it’s not rare.

Market volatility, like turbulence, can create worry. This fear is part of our make-up and is not easily tamed. When I was growing up, I “logged” a few thousand hours of passenger time in small airplanes. Bumpy rides can be unnerving. Believe me when I say that I understand the feeling. Downdrafts in security prices can create similar upset among investors.

If events of market volatility are unpreventable and unpredictable, what can be done?

Stay the Course

First, you should stay in your seat. The captain on your airline flight might turn off the seatbelt light, but also advises you to keep it on in case there is unexpected turbulence. You usually don’t have a need to take your seat belt off when you’re flying. Similarly, as an investor, you shouldn’t take risks you don’t need to take. Some risks, like speculating on the newest “hot investment” can put your portfolio at risk. Over the past few years, we’ve had people ask us about cannabis stocks, bitcoin, motion picture finance, LED lighting, etc. We’ve stuck to investing in the stocks of companies with solid cash flow and good management. In our example, that’s “staying in your seat.”

Second, understand that market volatility, like turbulence, will probably not keep you from reaching your goals. The worst-case scenario rarely happens, especially if you “stay in your seat.” If you decide, however, in the middle of a market event to change course, that may not end well. When you’re scared, you can be too willing to jettison what you have and to pay whatever it takes to buy assets that look better from your bumpy vantage point.

Third, try to focus on your destination and not on recent results. Investors are often pleasantly surprised about the beneficial effect of long-term compounding of their returns. The same people, though, can be tempted to change their portfolios by recent news or what a stock market pundit says. I think this is evident in company retirement plan accounts where employees need to make investment choices. People often feel that they need to make changes.

Cancel the Noise

On an airplane flight, you might read a book, watch a video or listen to a podcast to pass the time. Peering out a window to check the status of an engine usually won’t help you much. (It did make for a good episode of “The Twilight Zone,” though!) As an investor, you shouldn’t be too interested in what the “talking heads” are saying about markets. They are paid for creating an audience, not for their accuracy. And in retrospect, I believe most things that have been reported as “breaking news” haven’t had long-term effects on the returns of securities.

I’m going to stick my neck out here to make a suggestion. If you are one of those people who, like the engine-watcher in our example, are focused on watching the news channels and you often feel angst about what you should do, my recommendation is that you should try a hobby you’ve always wanted to do. Seriously. There are scary things happening every day. Getting updated on several more probably won’t help you lead a peaceful life.

We have clients who volunteer to teach math to kids, some who read good books, some who barbeque, some who collect classic cars and some who like to spend time outdoors, etc. They are well-rounded and enjoy life. I like to read and to ride a bicycle for long distances, though not at the same time! I still have time to know what’s going on in the world and I think I gain a good perspective on things.

We Will Help You

Finally, understand your tolerance to volatility. If you are our client, we’ve worked with you to understand your emotional and financial ability to withstand downward swings in security prices. If something has changed in your life such as, retirement, health issues, financial needs or even your emotional ability to deal with these changes, we should talk. We can make shifts in your overall portfolio accordingly.

The pilot doesn’t enjoy turbulence during a flight, and we, as your advisors, don’t enjoy market volatility, either. We’d like to avoid it whenever possible, but we will run into this from time to time. We will try to check on you during these times to see how you’re doing, and you should feel free to call us to talk, especially if your financial situation has changed.

Eric Ball, CFA®
Chief Executive Officer
America First Investment Advisors, LLC
Omaha, Nebraska

This post expresses the views of the author as of the date of publication. America First Investment Advisors has no obligation to update the information in it. Be aware that past performance is no indication of future performance, and that wherever there is the potential for profit there is also the possibility of loss.