Avoid the Knee Jerk: Financial Planning, Market Volatility, and 4 Signs It’s Time to Pivot

Trying to figure out your financial planning during a time of market volatility? Learn how to stick to your financial goals.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Market volatility? Avoid a knee-jerk response
5 min read
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Key Takeaways

  • Don’t let the need for immediate comfort rule your decision-making 

  • Make decisions based on long-term financial goals 

  • Consider getting a professional to help you with financial planning

The longer you invest, the more likely you are to realize that market volatility is part of the equation. There will always be times of difficulty, and when they happen, it can throw a wrench in your approach to financial planning.

“Are there times when you need to change your approach? Yes,” said Mark Gleason, senior manager of investment products and guidance at TD Ameritrade. “But it’s important to avoid doing it as a knee-jerk reaction to current market volatility.”

When deciding how to manage your financial goals in uncertain times, there are a few things to keep in mind.

Financial Planning Is About Long-Term Goals

Gleason pointed out, setting financial goals—and sticking with your plan—is key to potential long-term success. When market volatility strikes, it’s tempting to sell and try something different.

“We all tend to think about the immediate comfort of selling when the market drops,” Gleason said. “We seem to stop focusing on long-term financial goals and instead get overtaken by the fight-or-flight response.”

Rather than letting market volatility change your long-term financial plans, Gleason suggested taking a step back and fighting the urge to think short term. “Stay disciplined in your investment philosophy,” he said. “You might need to tweak something, but you don’t want to completely abandon your plans.”

One way to stay focused on long-term financial goals is to consider getting help from a professional. Gleason pointed there are many financial professionals and programs available, such as the AdvisorDirect referral program from TD Ameritrade, which matches clients with independent Registered Investment Advisors who can help with all aspects of financial planning. An independent advisor can help you stay focused on your end goal: to help you live the life you want down the road.

“If you are feeling overwhelmed or feel your strategy isn’t working, it can make sense to consider consulting full-time professionals,” Gleason explained. “They’re an outside voice with the experience that might help you bring your focus back to the long term and help you cut through the noise.”

Plus, when you begin getting financial planning help from the professionals, you can move beyond your portfolio and look at your entire financial situation. That may mean saving for kids’ college, planning for retirement, selling a business, or estate planning. An experienced professional can help you see how all the different aspects of your life fit into your big financial picture.

Four Signs It’s Time to Change Your Approach

Even though you don’t want to toss out your entire financial planning approach in the wake of market volatility, Gleason explained that there are times when it does make sense to change things up.

“Your financial goals aren’t set in stone,” Gleason said. “Circumstances change, and what you want might change. When that happens, it does make sense to change your approach.”

Just remember: the signs that it’s time to change things aren’t related directly to market volatility. Here are some clues that indicate you might need a shakeup in your approach to financial planning:

  1. Change in risk tolerance. If something has happened to change your risk tolerance, making tweaks to your financial plan can make sense. When a recent shakeup forces you to confront where you stand, it might be time to adjust your approach.
  2. New life events. Perhaps there’s been a death in the family. Or you’ve added a new baby to the mix. Maybe you’re getting married or going through a divorce. All of these life events can indicate a change in your financial planning approach.
  3. Shifting to a new life phase. Sometimes your approach needs to change as you actually start approaching your long-term financial goals. When you move from preretirement to actual retirement, your strategy is likely to change. Likewise, if you’ve been growing your child’s 529 and you’re worried about potential market volatility, you might make a few tweaks to the portfolio.
  4. Setting new financial goals. Most people set different financial goals as they move through life. Maybe you decide that buying a home isn’t the goal now; you’d rather get an RV and travel. Perhaps your target retirement age has changed. Whatever the new goal, you might need different financial planning in order to meet it.

“As long as you want to change your plan in response to long-term impacts, rather than short-term volatility, you’re probably on the right track,” Gleason said. “However, it might help to sit down with someone and map that out by setting new goals and creating a new plan.”

Bottom Line

Market volatility can cause discomfort, and looking at your portfolio during these times can be trying. But it’s important to take a step back and realize that, in many cases, the volatility is short term. You’ve probably set long-term financial goals designed to help you reach certain benchmarks in your life—and you don’t want to undo all your progress just to feel better during a market downturn.

“Although not everyone needs financial planning help, it can be useful for some people,” Gleason said. “Consider looking into tools like AdvisorDirect and goal-planning programs that can help you focus on setting financial goals designed to help you in the long run.”

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Key Takeaways

  • Don’t let the need for immediate comfort rule your decision-making 

  • Make decisions based on long-term financial goals 

  • Consider getting a professional to help you with financial planning

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