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Like I said Q3 was going to be wobbly

Back when my father was about to retire in 2008 and the great financial crisis was unfolding, it was a very scary time for everyone. There are countless stories of people selling their entire portfolio right at the bottom, locking in those losses and never getting back into the game.

As for my dad, because he had a solid financial plan that let him see the big picture, he was confident that he didn’t have to react and sell any part of his portfolio back in 2008 — and as we know the market recovered.

There I was an equity research analyst at the time before I received my CFP ® certification, and I was more scared than my father. My father’s leadership helped me learn one of the best and most important lessons in investing, which is this: a financial plan will help you weather the ups and downs of the stock market because you don’t have to react because you know you don’t need the money.

Like I said Q3 was going to be wobbly but at least the roller coaster is still on the track!

U.S. equities posted their biggest monthly selloff since the start of the pandemic as risk assets were roiled. The S&P 500 lost more than 1% on the day and almost 5% in the month, while Treasuries were mostly flat. Some concerns on the minds of traders include:

  • Near-term Fed tapering

  • Increase in interest rates at a high velocity

  • Dampened earnings revision momentum

  • Persistent supply-chain and input pressures

  • Energy price spikes in natural gas, oil, and coal

  • Complications facing additional stimulus

  • Debt-ceiling drama in Congress

  • China worries

  • Market seasonality

And U.S. stocks are still sitting on double-digit gains for 2021, but the periodic downdrafts are getting harder to ignore. Stocks stabilized, but the combination of high(ish) equity valuations and the prospect of higher yields leaves stocks vulnerable to future wobbles.

At times like this, it’s only natural to wonder if the volatility is a short-term blip or the start of something really bad. The answer will only be apparent in hindsight, so I don’t think it’s productive to spend too much time on forecasting. Instead, the most reassuring thing you can do when the going gets volatile is to take a closer look at your long-term financial plan. Ask yourself:

  • Is your savings program on track?

  • If you’re already retired, are you taking a reasonable withdrawal rate?

  • Does your asset allocation make sense given your proximity to spending your money?

  • Are you comfy with the distinction between risk and volatility?

  • Have you tightened up the expenses and tax efficiency of your plan?

Longtime investors know that sitting tight through volatility is part of the process. Indeed, you make your money during volatile times every bit as much, if not more, than you do when the sailing is smooth. Buying on the dips means there’s more upside to enjoy when the markets inevitably go north again.

Your financial plan and retirement savings is uniquely yours, and it’s likely different from that of your parents and even of your friends and peers. Your portfolio can go up and down like a roller coaster, but if you have an advisor and a financial plan, it’s like the seatbelt and shoulder restraints on a roller coaster — you can sit tight and ride out the volatility of markets going up and going down, and know that you are safe and secure.

As Paul Harvey once said: The only ones to get hurt on a roller coaster are the jumpers.

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