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How to Invest in a Volatile Market

How to Invest in a Volatile Market

December 11, 2018
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I wrote a couple of articles a while back that had to do with investing for the long-term and taking on too much risk.

That said, the current environment has me thinking.

Being in my position gives me a unique ability to see how each demographic reacts to market volatility when they are at different stages in their lives.

I think a lot of the younger generations, people that have been in the market and participating in the bull since 2009 will have a harder time with the next, big pullback.

The reason being is they’ve only seen a market that goes up. I think this recent volatility has them worried and they will mentally and emotionally struggle when this bull inevitably runs out.

I’ve also seen middle-aged people, in their prime earning years have little to no reaction during the recent volatility. They’ve seen two or more severe declines, and know what goes down always (given the historical track record of the market) comes back up.

On the same token, I’ve seen middle-aged people panic in the presence of volatility because they’ve seen two or more large-scale drawdowns. It’s all a matter of perspective and investor psychology.

The third demographic is the pre-retirement age, usually between 55 and 65. More often than not, these people need to be more conservative. At this stage in the game, the primary objective of your investment portfolio should be capital preservation.

However, people are living much longer nowadays, so if you are okay with being more aggressive, that’s perfectly fine. As long as you know the risks.

Here’s what I’m trying to figure out for myself. There are vast amounts of people smarter than me in this space. Particularly in economics. So what I try and do is get several different points of view to see where we are going, or at least get an idea of how to plan for the near future.

I do this in the form of macroeconomics. I have a long list of people I follow on Twitter specifically set aside so I can see everything they tweet about the market and the economy. I also subscribe to several email newsletters about macroeconomics, for more perspectives.

Here’s what I’m seeing:

  • Trade is scaring everybody - The trade tensions between China and the U.S. are spooking markets. People are unsure of how things are going to play out, particularly after that Chinese executive was arrested in Canada.
  • Interest rates are in question - The FED, for the longest time, has been very transparent when it comes to interest rate activity. Up until a week ago, they thought four rate hikes in 2019 and then a few more in 2020. Now, there’s a wait and see approach, so how many rate hikes and the timing of those hikes are unknown.
  • We are in year 10 of this bull market - Historically, we see a bear market every 6 to 8 years.
  • Housing has slowed in consecutive quarters - The metrics used to measure the housing market’s health (new housing builds, current home sales, etc.) has slowed. The housing market is seen as somewhat of a barometer for the economy. If fewer people are buying houses, that generally means people are spending less. Spending is good for economic growth.
  • Volatility has picked up - Volatility is good and bad, depending on who you ask. Whichever side of the fence you stand on, it’s normal. However, volatility exists because people are nervous and get scared out of their positions, and then contrarian/long-term/value investors swoop in to buy “the deals” when they’re available.


All that said, here’s what I have to say. No matter what the market does tomorrow, next month, or next year, you need to plan for your goals. If you have time on your side, try not to worry about the day to day swings.

If you have 20 or more years to invest, most often, the trajectory of your investments will be up and to the right.

Figure out what your goals are and fight like hell to get there. Save, invest, and ignore the noise.

If you’d like to learn more about setting and planning for financial goals, send me an email or subscribe to our free monthly newsletter.