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Peace of Mind: Sharing the wealth

Cash Gift

By Isabelle Denton

It’s a natural reaction to feel fear and anxiety when there is a high degree of volatility in the stock market. So it was extraordinary that our phones remained pretty quiet in the sell-off that began Sept. 19 and eventually bottomed on Oct. 15.

In that time, the CBOE Volatility Index, commonly referred to as the “fear index,” reached a level we haven’t seen since 2011. But then, earnings season began, and investors focused more on the fundamentals and less on the noise. Volatility fell, and stock indexes resumed their streak of all-time highs.

It’s gotten me excited to think that our efforts to guide clients through investing have led many to be able to look past the emotions and focus on what really matters.

I spend a lot of my time, even outside of the office, talking about investing and the markets with friends and family because it’s what I do every day. This past month was a great reminder for me that many of our clients really get this – and they too can help ease the stress and fear of those around them simply by sharing what they already know.

For many, this was not the first time experiencing a pullback in the market. They remember the setbacks in 2008 and even the summer of 2011. They know firsthand how their accounts reacted not only when the market dropped but also when it recovered.

Others may be newer to investing or more affected by the short-term noise. A recent New York Life survey found 73% of respondents admitted to being stressed by finances. They could learn from the wisdom of those who did not panic in October.

As the holidays bring together family and friends, consider sharing what you know to help spread the confidence you have as an unfearful investor. Tell them:

  1. Over time, the market runs off fundamentals, not headlines.

The two main drivers of the markets are interest rates and earnings. With all the news out there for us to worry about, what helped us stay patient was knowing that earnings would paint a clearer picture. By the time most of the S&P 500 companies reported, 77% said earnings exceeded analyst expectations, giving investors the confidence they needed to look past short-term uncertainties and drive the market back to record gains.

  1. Be diversified, and invest at the level of risk that is right for you.

Diversification and asset allocation helps us feel more comfortable during big market swings. Well-diversified accounts allow us to participate in market performance without taking on the same level of risk. Diversification can also help offset losses when one area of the market is struggling more than others. We can find comfort in knowing that the broad performance we see generalized on TV or in the paper is not the same as what we are experiencing when our accounts are well balanced and diversified.

  1. Keep short-term needs safe; think long term with the rest.

Investing 101 tells us to buy low and sell high. That sounds easy, but in practice it can be tough when our emotions get in the way and our fear causes us to want to sell when we see prices drop. Investing with a long-term outlook allows us to overcome those emotions and not make knee-jerk reactions. A big drop in prices does not have a definitive impact on your financial standing unless you sell at that time. We park money earmarked for shorter-term needs in much safer instruments so that we can tolerate the ups and downs with the other funds.

There is always something new out there for us to worry about. Sharing what you have learned with someone who has been paying too much attention to their account balances could help them sleep at night. Spreading that peace of mind could be the greatest gift you give this holiday season.

Isabelle Denton is a registered representative and advisor with Landaas & Company.

(initially posted Nov. 24, 2014)

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