Episode Transcript
When the market goes up and down, you might feel a little anxious or have questions. Where do you stand? Are you protected? Do you need to do anything differently? This is Fidelity's Money Unscripted with certified financial planner Ryan Viktorin and me, Ally Donnelly. Today, we're talking market volatility and what to ask your advisor. Ryan, what's the biggest question you get during market fluctuations?
Yeah, Ally, by far, it is, Am I going to be OK? And am I still on track for my goals?
And what do you say to that question? Especially when things are emotional?
Well, I would say two things. So first of all, let's just take a breath. OK, like-- [BREATHES] that's the first one. But the second one is let's revisit the plan we had going into this volatility. Because really, any plan that we would have put in place really would have accounted for the fact that volatility is sort of a normal part of the market.
I know we shouldn't obsess about a moment in time, or a look at the portfolio, or the headlines. But if I'm feeling a little itchy when I hear stay the course, what kinds of questions can I ask my advisor if I want to look and see if I'm OK with the retirement or long-term plans?
Yeah, so going back to the number one question that I get, like I said before, which is, Am I going to be OK? That is the question that we can ask. So it's completely fine to call your advisor, and ask that, and say, I really want to revisit the plan.
But rather than focusing on that short term, like the ups and the downs, or like you said, when you log in or you see a headline, I would go back to what I call the who, the what, and the when. Who are the important people in your life? What are the things you're hoping to accomplish? And when are they happening?
And ask the question, has any of that changed? That can have a bigger effect on whether we should change any part of the plan, rather than the short-term market fluctuations. So I'd kind sit in that space. And that can make it get a little bit easier, when I say something like, let's stay the course. You say, OK, it's because nothing's actually changed in my life. OK, great.
And the plan you've built is intended to weather the storm.
Yeah, absolutely. It should take that into account. So I think having that type of discussion can alleviate that itch.
But if I feel like I want to do something, is there something for me to do?
Yeah, so again, I'm going to say it again, it's revisiting the plan. But the other thing that I think comes up is this idea of risk tolerance that should-- an action can be, let's reevaluate what that means. And we toss around that phrase a lot in this industry, risk tolerance.
But I think the point of that to focus on is the tolerance part. What type of ups and downs in your portfolio in the market can you actually tolerate? And it's times like this that I always say true risk tolerance comes out in times of volatility, not when the market's just going straight up.
And so I think the action could be talking to your advisor and really saying, OK, what am I actually comfortable with? And that might also lead to maybe we rebalance, or maybe we do start to make a change. But not the market fluctuation itself. It's how you're feeling about things within the context of everything.
Dig in there a little bit. You're with a client. And you're trying to determine are they still comfortable with their risk tolerance? What does that conversation look specifically.
Well, I want them to visualize what could happen. In times of market volatility, it comes up. But in particular, the real volatility that comes is tied to or in and around a recession. Market volatility is normal. Recessions are a much broader, bigger deal. And so I want you to visualize what is that going to be like for you before it happens.
And sit with that for a little bit. And sometimes, I give them a bit of a homework assignment. I want you to go home and visualize this for yourself. And then we come back and have another discussion about it. And sometimes, my clients say different things where they say no, if the market comes down, I realize that's an opportunity for me.
I see that as a buying opportunity. But some clients say, I thought I could. I can't. I'm just not comfortable with this. Or it also facilitates a conversation between maybe like a partner, two partners, I should say, is one might be more comfortable, one might not. So that's what that conversation kind of sounds like. It may not even mean that there's an action. It's just talking about it sometimes really helps.
And visualizing. But still, I hate to be like negative Nancy here. But if I'm looking at my portfolio, and I'm seeing my 401(k) go down, or I'm seeing my portfolio go down, how can a market dip affect my retirement or other long-term goals?
Well, I think the important part of that is the long term part of that. So the real question is, how close are you to that goal. So if you're in your 30s, 40s, 50s, you still have a lot of time, possibly until you retire, maybe in your mid 60s. But if you are in your mid 60s, either you're in retirement, or you're approaching it, that might be a time to really take a look to see how that affects.
And like, let me highlight an example for you to bring back into more recent memory. If we journey back to 2008 and all the people that are today, 60 or 65, they were in their 40s in 2008. And so it was a huge recession, a big market move. But they had a lot of time between now and when they were going to retire. So that was a huge opportunity.
And of course, we've seen what the market has done since that time period. Fast forward to now for that same group of people who, like I said, are in their 60s and maybe 65, they might be in or really close to their retirement. So they would be reevaluating things more so than someone who's in their 40s and 50s. But it's a different experience based on where you are. It really depends on how far away you are from that long-term goal.
So to that end, what if there is an impulse to say, maybe I should pull back a bit, or maybe I should get out of the market? What things do you encourage people to think about there?
I would say the impulse is normal. It's an emotional thing because you're watching the money you've worked so hard for go up and down. And it's fun to see it go up. Not so fun to see it go down. But what I would say is the chances that you come out at the right time and come back in at the right time, there's a name for this, called market timing is really unlikely.
And there can be really big-- I would say detrimental impacts to missing staying in the market as opposed to participating in the ups and downs. Let me give you a hypothetical example of this. What if I just took $10,000 in the late '80s and I just put it in the market? I'm not saying putting it in the market is for everybody.
It's just highlighting it-- highlighting an example. And you just put it in the market, and you didn't touch it, you just left it there until a couple of years ago, at this point, 2023. That $10,000 would have grown to over $417,000 if you just did nothing, tolerated all the ups and downs since the '80s and just stayed in.
But had you come out at some point and missed just the five best days in the market from that entire decades long experience, then you would end up with $264,000 and change, which is a huge difference from that original $417,000.
And I'm going to go one more. If you missed the best 10 days in the market, again, over that entire time period, then you end up with just over $191,000, which again, a huge difference from the original $417,000. So you can see the power in just staying invested over the course of the whole time period.
Yeah, yeah, so that's staying invested. But what else can I control when things feel out of control?
Yeah, I mean, we can't control the market. We can't control the economy. We can't control administrations. We can't control any of this stuff. What we control is your own financial picture. I always say sort of like, get your financial house in order.
But also think about there's so much coming at us with social media, and online, and in the news, and everything. Maybe control how much we consume because it can actually fuel the fire of these feelings, as opposed to alleviate some of the concern.
But you also want to think about how do I get a sense of my cash flow? And how do I have a sense of what my emergency savings is? Or if I get kind of-- there's rumblings of job changes, maybe I update my resume, maybe I'm coming up with a contingency plan. So it's things like that you can start to control.
What about opportunities in a market like this?
So that's kind of like the flip side of what we were talking about before, like I said, for the people who are in their 20s, 30s, 40s, and maybe they're just getting started, it absolutely is an opportunity. So what I would say for anybody in that kind of boat, or they feel really comfortable with that type of experience is make sure you don't just pause because things are volatile.
Is there a plan for it? Are we going to take action when there's some sort of opportunity that we see? Some sort of market dip that could be a buying opportunity, that someone might interpret that? But also, I love to see things automated.
Just remove the I feel like I should do this right out of it because our feelings tend to be counterintuitive to investing. And so just have the paycheck, still put the money in the 401(k), still save into your IRA, still save into your brokerage account. The opportunity is to just keep moving through. But still, revisiting the plan based on how far away you are from your goals makes sense.
Terrific, if people are leaving this conversation with some final takeaways, what do you want those to be?
So definitely, you know I'm going to say revisit your plan. But I'm also going to say, it is take that breath. Just let's calm down a little bit. I know it's hard. But the calmer we are, the better types of decisions that we make.
But call your advisor. Ask the questions. It's totally fine. That is literally what we're here for. And so it's OK to dig into, Am I still going to be OK? Am I still on track?
Yeah, and sometimes, like you said, it's just that conversation that gives you peace of mind. Ryan, it's been really helpful. Thank you so much.
Thanks for having me.
For more on managing market volatility, head to our website. It's Fidelity.com/MoneyUnscripted. We share ways to stay invested, strategies to help you protect what you have, and potential opportunities when markets are down. Thanks so much for watching or listening to Money Unscripted. It's your life. Get your money's worth.
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Stock returns represented by the S&P 500® index from January 1,1980–December 31, 2023. Source: Fidelity, Asset Allocation Research Team, Bloomberg as of 12/31/23. The hypothetical example assumes an investment that tracks the returns of the S&P 500® Index and includes dividend reinvestment but does not reflect the impact of taxes, which would lower these figures. “Best days” were determined by using the one-day total returns for the S&P 500® Index within this time period and ranking them from highest to lowest. There is volatility in the market and a sale at any point in time could result in a gain or loss. Your own investment experience will differ, including the possibility of losing money. It is not possible to invest directly in an index. All indexes are unmanaged.
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