Is all the news coverage of the stock market selloff bumming you out?

I don’t know about you, but I’m downright disappointed.

You know, markets have had a ripping good start to the year, and now it feels like it’s all coming to an end, right?

In fact, in the first three months of the year, the S&P 500 index, one measure of stock market performance, had its best start to the year since the pandemic.

And this stellar performance comes after watching these markets ride a rollercoaster over the past few years, with prices seemingly flying to the moon and then dropping like bricks.

But now, after having a good run for the past six months, it feels like Mr. Market is once again pulling the carpet out from under us all.

It feels like we’re all about to relive the uncertainty and ups and downs in the stock market that we did just a few years ago after finally getting back to even.

It’s just not fair, is it?

Indeed, turn on financial news, and it’s all right there: concerns about impending wars, political wranglings and upcoming elections, unabating inflation and all this ongoing interest rate policy uncertainty.

It’s enough to make you want to build a bunker and hide away for the next decade!

Now, having felt the pain of watching markets sell off in 2022 and then having it take two years to bounce back only to potentially be right back at it again, I’d be tempted to pull my money out of the markets and wait for this storm out for the time being.

Do you feel the same way?

Are you tempted to throw in the towel and just sit all of this out so you can break even?

Well, if you are, then you should know that being under-allocated in the markets could leave you with a massive case of investor’s remorse.

In other words, if you take your money out now, you could feel somewhat safe, sure.

But, you could also be left with a sinking feeling of disappointment a year from now.

You know, no one has a crystal ball to divine which one of today’s headline events could lead markets to rally or falter next week, let alone next year.

So then, given everything going on, if you’re tempted to pull money out of the markets, I’d encourage you to pay less attention to the headlines and more to your disciplined investment strategy.

That’s because if you don’t, you’ll not only miss out on gains on the other side of all this bad news, you’ll likely also throw your investing ability into question and potentially derail your long-term financial plans.

The Problem with Being Swayed by the Headlines

So, before we go any further, it’s crucial to point out that the current market environment is reflective of a natural pause in a healthy market rally.

The trouble is, however, that when you’re in the middle of a rally pause, it’s hard to tell whether the market is getting ready to make its next move higher or lower.

And you know, during times like these, I’m reminded of where I was on March 9, 2009.

Now, this date marked the bottom in the decline of the S&P 500 index during the height of the Global Financial Crisis.

And as you’ll likely recall, the world seemed like it was coming unglued at the seams.

Now, back then, I was a market analyst for a private wealth management firm.

And at the time our leadership team held calls every week to discuss strategies for helping advisors help clients during this time of uncertainty and help them stay committed to their investment plan.

And so, to me, March 9th seemed like any other normal (or what you could consider normal during that time) day in the market.

But from that date on, the market slowly but surely started clawing its way back higher.

Now, the truth is that nobody rang a bell or sounded an alarm to let the rest of the markets know that we hit a bottom.

In fact, investors, traders, and market participants collectively decided to just start buying.

I mean, how much worse could things get at that point, right?

And so, wouldn’t you know it, the rally would go on to produce annualized double-digit returns for the next decade.

But you’re likely thinking to yourself, “Those conditions were different then, and the world is in a different place”, right?

Well, even when you look at recent market activity, like what happened after the start of the pandemic and shutdowns, the markets sold off sharply, but then it recovered.

To be sure, in 2020, risk assets sold off in February, and then again in March, but by April, they not only bounced back, many stocks took off again and rallied until the end of 2021.

That’s why you need to invest in your strategy, not in the stories.

The Problem with Market Aversion

Here’s the thing: some investors are often swayed by the volatility and noise of the market and, oftentimes, are driven by constantly changing headlines that can lead to poor choices and costly mistakes.

Now, this type of investor often finds themselves swept up in the currents of financial media and headline events.

So then, when the stock market begins to shake, maybe due to economic reports, global incidents, or political unrest, these individuals react quickly and are driven by a fear of losing their life savings.

Instinctively, they want to hide their money under their mattress until it’s safe to come out and play again.

Now, the trouble with this approach is that when the market begins to recover, these same individuals, still wary from their recent scare and perhaps still influenced by lingering negative headlines, are hesitant to re-enter the market.

So then, by the time they feel confident enough to invest again, the market may have already rebounded significantly and much of the big gains may already be gone.

So, why does this happen?

Well, this sort of behavior is a classic example of being influenced more by emotion and less by a disciplined, long-term investment plan.

That’s because when you allow yourself to be bombarded by conflicting information and rapid-fire news headlines, it can lead to either analysis paralysis or the impulse to make hasty investment decisions.

In other words, you’re allowing an external medium to influence your decisions, rather than being grounded in your internalized plan.

The Emotional Hangover

Now, could you imagine being that individual on March 9, 2009, who, amidst all the headlines, decided they couldn’t take all the bad news anymore and pull their money out of the markets?

Or how about being that person who sold all of your holdings in early April 2020 just as the markets were pivoting ahead of a massive rebound?

Now, if you’re one of the individuals who went to cash during either of these times, then my heart goes out to you.

Truly, I appreciate your pain because you know firsthand what it feels like to be influenced by the media, only to sit by and watch the tickers bounce back and then convince yourself that you’ll likely find a good entry point that always seemed to come too late.

You understand what it feels like to have an emotional hangover.

You know how relying on your emotions instead of a disciplined strategy can exacerbate your already-existing feelings of doubt and insecurity.

You also know how this emotional turmoil can lead to episodes of heightened stress and anxiety, which likely deterred you from making any more investment decisions, right?

That’s why, during times like these, it’s essential to invest in your strategy, not in the stories.

The Long-term Cost of Doubting the Process

Now, when you allow yourself to be swayed by what you hear in the news, something else starts to happen besides getting out-of or in-to the markets at inopportune times.

That’s because when you let emotional impulses guide your investment decision-making process rather than adhering to a disciplined strategy, you may find yourself on a turbulent financial journey.

When you let go of reason, and start following your “gut”, a whole cascade of events starts to unwind that I’ve seen happen all too many times.

And so, what happens is that as you react impulsively to short-term market fluctuations, you might shift from one strategy to the next, chasing returns or fleeing losses, rather than staying the course with a well-thought-out, disciplined investment plan.

This pattern not only erodes potential earnings through poor timing but also incurs higher transaction costs and possible tax consequences from your frequent trading.

But here’s the thing, over time, when you finally become emotionally worn out, the lack of consistent growth in your investments can ultimately lead you to question your own ability to manage your finances effectively.

It’ll lead you to want to throw in the towel on all of it.

What Happens When You’re Driven by Emotion

And so, how does this happen?

Well, essentially what happens is that your self-doubt undermines your confidence and makes you more susceptible to further emotional investing.

Or, on the flip side, it leads you to adopt excessively conservative strategies that don’t align with your original savings goals.

Now, let me tell you a story to better illustrate how this happens.

I’m going to tell you the story of someone we’ll call Sarah.

Now, Sarah is a middle-aged tech professional who was well on her way to building her retirement savings through the power of compounding and disciplined investing.

Initially, Sarah approached investing with enthusiasm and optimism, but she lacked a clear, disciplined strategy.

She loved to turn on CNBC or Fox Business News almost every morning before work and she frequently engaged in Slack chats about the markets or the latest meme stock with her coworkers.

And so, her “investment” decisions were often heavily influenced by daily market news and the opinions of financial pundits and the people around her.

So then, when the markets experienced a significant downturn, Sarah became activated by the emotional energy from, naturally, the people and media around her.

She’d hear about all the stocks and sectors losing money. She’d hear about “Markets in Turmoil” and start to get concerned.

Then, she’d hear about how her coworkers were now losing a ton of money.

So, what did Sarah do?

She panicked.

She sold several of her most fundamentally sound holdings because she was scared of taking further losses.

And wouldn’t you know it, Sarah sold right as the market was setting the stage for another move higher.

So then, over the next few weeks and months, as the markets began to claw their way higher, Sarah stayed on the sidelines.

And so, by the time the talking heads on TV were touting the invincibility of the new bull market rally, Sarah felt confident enough to re-enter the market.

But, prices had significantly recovered, and she ended up buying back the very same positions she sold months earlier, but now at higher prices than for what she sold them.

Frustrated and disillusioned, Sarah began to doubt her financial experience.

She began questioning whether she could ever achieve her long-term goal of building a legacy for her family, let alone a secure retirement.

In fact, the emotional toll experienced by Sarah was so profound that each financial misstep not only diminished her resources, it also chipped away at her self-esteem and her trust in her own decision-making abilities.

Now, did Sarah learn her lesson?

Did she learn to trust her investment plan instead of the stories playing out on TV?

Well, the unfortunate answer here is, no.

The truth is that, as Sarah’s investments continued to suffer due to her reactive choices, she began to feel helpless.

Now, this wasn’t just about money, it was about her vision for her future and her competence in securing it.

So then, when periods of market volatility would pick up, she’d sell.

And with every market dip and subsequent sale, Sarah felt a surge of immediate relief, followed by deeper waves of regret as the market recovered without her participation.

This rollercoaster of emotions led her to oscillate from fear, to relief, to regret.

And you know, it became a recurring pattern with each cycle more disheartening than the last.

And this was such a problem that Sarah found herself increasingly cautious, second-guessing her choices and potential investment opportunities.

This anxiety over making further mistakes made it difficult for her to commit to any long-term investment strategy, trapping her in a state of indecision and paralysis.

Have you ever felt like Sarah?

Have you ever been in her shoes?

Sarah’s experience here reflects many of the common responses I’ve witnessed from individuals who follow the headlines instead of their disciplined strategy.

How to Invest in a Disciplined Strategy

So then, what can you do to avoid a similar outcome?

Well, whether you’re prone to falling for headlines, or just want to make yourself more impervious to outside influences, I’m going to share with you three things you should consider when uncertainty and market volatility pick up.

Rebalance Your Portfolio

To start, one of the first things you’ll want to do is to rebalance your investment portfolio.

And why would you want to buy or sell anything during times of uncertainty?

Well, you’ll want to take action now because by regularly rebalancing, what you’re doing is taking a proactive, instead of a reactive stance.

You’re controlling your financial future, optimizing performance, and minimizing risk, by ensuring that your portfolio is buttoned up, rather than passively reacting to market volatility.

And so, where do you begin?

Well, you can start by asking yourself, “What is my current asset allocation, and how does it compare to my target allocation?”

Here what you’ll want to do is to compare where your current investment holdings are now against your ideal allocation defined in your investment policy statement.

Then, adjust your portfolio by selling overrepresented investments and buying underrepresented ones.

Now, it might not seem like much, but this approach can help you stay committed to your long-term strategy because you’re actually doing something proactive rather than reactive amidst the market volatility.

Prepare Your Sleep-well Number

Alright, the next thing that you’ll want to do to avoid being caught up in the emotional stories is to define your sleep-well number.

And what is a sleep-well number, you ask?

Well, it’s the amount of money you need to have in cash to help you, you guessed it, sleep well at night.

Here we’re talking about holding enough cash equivalents to cover your living expenses or big-ticket spending over the next 12 to 18 months.

And so, by having sufficient cash on hand what this does it that it provides you with a buffer against market downturns, and ensures that you don’t have to sell investments at a loss during unfavorable market conditions.

At the same time, this approach not only protects your lifestyle but also gives you the flexibility to capitalize on investment opportunities as they arise, without the need to liquidate other assets under pressure.

So then, to get started, you’ll want to ask yourself, “Do I have a sufficient cash reserve to maintain my financial stability during a prolonged market downturn?”

Here what you’ll want to do is evaluate how much liquid cash you have now and compare it to your monthly living expenses or immediate cash need in the months ahead.

And then from there, you can proactively begin to sell investments if you need to raise more cash.

This review will help you understand if you are adequately prepared for financial downturns or unexpected expenses.

Trust Your Investment Plan

And finally, to avoid being influenced by your emotions, you’ll want to trust your investment plan.

Now, this step seems obvious, but it’s the one that’s most often forgotten by even the most seasoned investors during times of uncertainty.

And why is this step important?

Well, it’s crucial because investment plans are actually designed to help you navigate through various market conditions, especially market volatility, and help you capitalize on the natural appreciation of markets over time.

So then, by sticking to your plan, you avoid making impulsive decisions based on short-term market fluctuations, which can derail your financial goals.

Remember, consistency and patience in investing often yield the best returns.

Markets generally tend to rise over the long term. And if they didn’t, you wouldn’t be investing, would you?

So then, the trick here is to get through those short-term gyrations, so you can grow your money for the long-term.

And you can start by asking yourself, “Do I understand all aspects of my investment plan?”

And why would you ask this question?

Well, knowing the details of your plan, including how it works under different market conditions, will help you build confidence that you may have lost in past market downturns.

That’s why it’s crucial to take the time to fully understand each component of your investment strategy.

Now, this might involve researching investment types, reading up on historical market performance, or consulting your financial plan to clarify any doubts.

Either way, it means turning off the financial news.

It means, trusting your plan so you can stay focused on your financial goals.

Keep Calm and Trust Your Investment Plan

Now, when it comes down to it, it’s crucial not to let market noise and short-term fluctuations distract you from your long-term financial goals.

That’s because, over time, the cumulative effect of not adhering to a disciplined investment strategy, especially during times of heightened market volatility, can significantly derail your long-term financial security and your and your family’s overall financial independence plans.

In fact, these missteps could mean delaying retirement, adjusting lifestyle expectations, or not following through on your long-term legacy-building initiatives.

But, the good news is that sticking to a disciplined strategy can help you overcome the investing uncertainty you’re facing today.

I mean what’s the worst that could happen if you embraced the discipline of a carefully balanced portfolio, maintained a robust cash reserve, and trusted the wisdom of your long-term investment plan?

Imagine the peace of mind you’d experience, knowing you’re well-prepared for market ups and downs.

Think about the confidence you’d feel, free from the grip of panic and fear, even when financial headlines shout uncertainty.

That’s why, by sticking to your strategy, you not only safeguard your financial future but you’re also taking one step closer to becoming the master of your own financial independence journey.