Aug 12, 2022 What Should you do when there’s Market Volatility?

During this time of market volatility, we want to share the things we are doing and some things that you can do to help ease your worries.

  • Rebalancing your portfolio. Volatile times can lead to rebalancing opportunities. Market changes can skew your allocation from its original target. We may rebalance your portfolio by selling positions that have become overweight in relation to the rest of your portfolio and buying positions that have become underweight.
  • Tax Loss Harvesting. Volatile markets can give us good opportunities for tax loss harvesting in taxable accounts. By selling a security that has experienced a loss, you are able to offset taxes on both gains and income. The sold security is replaced by a similar one to maintain an optimal asset allocation.
  • Reinvesting Dividends. We are automatically reinvesting dividends rather than having them go to cash. This way you’ll be buying more shares of your equity investments at lower prices.
  • Stress testing your portfolio. We continually test portfolios to see how their asset mixes hold up in thousands of hypothetical market environments. These “stress tests” verify that the right asset allocation will support your goals, even under the strain of external stress factors.
  • Making sure you have a diversified portfolio. The best approach to protect your portfolio is to diversify among a broad mix of asset classes, including stocks, bonds and alternative investments. We review your portfolio to make sure that each asset class is doing what we expect it to do and that the mix matches your target asset allocation.
  • Avoid jumping in and out of the market. While we do make allocation shifts from time to time, we do not completely jump into and out of the market. Successful market timing is a very inconsistent investment strategy because it requires making two correct decisions: getting out at the right time and getting back in at the right time. It’s easy to look back and say with hindsight that the stock market was overvalued at a particular time and due for a decline. But no one has been able to accurately predict market declines on a consistent basis.

Here are some things you can do right now:

  • Remember that your portfolio is not “the market”. The performance of your diversified portfolio can be very different from the performance of “the market”. It’s likely that your portfolio has a mix of both stocks and bonds and may also be diversified between small cap stocks, non-U.S. stocks and alternative asset classes. “The market” is generally U.S. large cap stocks only and your portfolio is likely to have different performance.
    • The risk-off portion of your portfolio allocation – a combination of bonds, balanced and alternative investments – has done its job since the stock market’s peak by insulating the equity declines. These segments of your allocation are there to play defense for you. We can spend from them if you are taking regular distributions or we can use them as dry powder to rebalance into stocks.
  • Focus on the Long Term. If you’re a long-term investor, resist the urge to make drastic changes to your investment plan in reaction to market moves. Time smooths out market fluctuations, which can help you put any concerns into context. For instance, the S&P 500 Index has experienced double-digit annual losses in 11 of the last 93 years (through 2019) and has only experienced double-digit losses twice over any rolling five-year period. Therefore, for a long-term goal, you can feel more confident holding on to stocks, even if you experience short-term declines.
  • Review your risk tolerance. The risk you take should change as your current situation and life stage change. Market volatility can be a wake-up call to consider adjusting your target asset allocation before a major change in your portfolio.
  • Tune out the noise and trust your asset allocation. Try not to look at your accounts every day or keep the daily changes in context of your longer-term goals. Seeing the same story at the top of every news site you visit, as well as seeing related portfolio fluctuations, is likely to do more harm than good. If you have an asset allocation that’s based on your goals, risk tolerance, and time frame, you should have confidence in your portfolio’s ability to handle market turbulence. That’s why it’s so important that you have an asset allocation that you can remain committed to, even when markets might appear to be in a free fall.
  • Resist the urge to sell based solely on recent market movements. Making shifts to your portfolio in hopes of avoiding a loss or finding a gain rarely works long-term. Staying the course, while difficult emotionally, may be healthier for your portfolio. Investors who panicked and dumped stock holdings in 2008 and 2009, believing they could get back in when “the coast was clear,” likely suffered equity losses without the benefit of fully participating in the recovery. This doesn’t mean you should hold on blindly, but we suggest considering an investment’s future prospects and the role it plays in your portfolio, rather than being guided by noise and fear.
  • Check up on your spending. For those in the deaccumulation phase, your spending rate can be important to making your money last. There are lots of things out of your control like how long you live, the rate of inflation, taxes and market returns. However, you can control your spending rate.
  • Make volatility work for you by Dollar Cost Averaging. For those in the accumulation phase, saving and investing regularly can be important to your long-term financial goals. If you invest regularly, you’re putting the market’s natural volatility to work for you. Buying a fixed dollar amount on a regular schedule offers opportunities to buy low during market dips. Over time, regular contributions can help reduce the average price you pay for your fund shares.
  • Gifting. If you are gifting to your children, consider gifting securities to them while the markets are down. This reduces the value that you have to claim as a gift and then when markets recover, the securities they were gifted will be worth more.

We realize it’s easy to say volatility and market dips work themselves out over time, but we realize it’s much harder to live through. It can be incredibly difficult to watch your portfolio decrease, no matter how much of a buying opportunity it presents.

Please contact your advisor if you would like to review the volatility of your portfolio.

Company News

What was the Highlight of your Summer?

Welcome, Shawn!

Congratulations, Dirk!

Community Involvement: West Valley Dollars for Scholars

New Client Portal Experience

Market Commentary

2022 2nd Quarter Investment Commentary

Market Update: May 2022

2022 1st Quarter Investment Commentary

Market Update: February 25, 2022

2021 4th Quarter Investment Commentary

Retirement Planning

The Huge Cost of Doing Nothing

Student Loan Update

Unclaimed Property and Retirement Benefits

Medicare Open Enrollment for 2022 Begins October 15

Taking Advantage of Employer-Sponsored Retirement Plans

Tax Planning

Important Ages for Retirement Accounts

Do I Need to Start Making Federal Estimated Income Tax Payments?

Reminders as you Prepare your 2021 Taxes

Washington State Long Term Care Tax on Pause

2021 1099 Release Information

Cyber Security

Cybersecurity 101 – 2022 Update

Cybersecurity 101

New Changes to Web-Portal Password Requirements

Equifax Data Breach Update: Make a claim today

Cybersecurity 101

Important Disclosures

Leonard Rickey Investment Advisors, PLLC (“LRIA”), is an SEC registered investment adviser located in the State of Washington. Registration does not imply a certain level of skill or training. For information pertaining to the registration status of LRIA, please contact LRIA or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).

This is provided for general information only and contains information that is not suitable for everyone. As such, nothing herein should be construed as the provision of specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. There is no guarantee that the views and opinions expressed herein will come to pass. This newsletter contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein and take no responsibility therefore.

Any projections, forecasts and estimates, including without limitation any statement using “expect” or “believe” or any variation of either term or a similar term, contained here are forward-looking statements and are based upon certain current assumptions, beliefs and expectations that LRIA considers reasonable or that the applicable third parties have identified as such. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes. Some important factors that could cause actual results or outcomes to differ materially from those in any forward-looking statements include, among others, changes in interest rates and general economic conditions in the U.S. and globally, changes in the liquidity available in the market, change and volatility in the value of the U.S. dollar, market volatility and distressed credit markets, and other market, financial or legal uncertainties. Consequently, the inclusion of forward-looking statements herein should not be regarded as a representation by LRIA or any other person or entity of the outcomes or results that will be achieved by following any recommendations contained herein. While the forward-looking statements here reflect estimates, expectations and beliefs, they are not guarantees of future performance or outcomes. LRIA has no obligation to update or otherwise revise any forward-looking statements, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of events (whether anticipated or unanticipated), even if the underlying assumptions do not come to fruition. Opinions expressed herein are subject to change without notice and do not necessarily take into account the particular investment objectives, financial situations, or particular needs of all investors.

For additional information about LRIA, including fees and services, please contact us for our Form ADV disclosure brochure using our contact information herein. Please read the disclosure brochure carefully before you invest or send money.