panic is not a strategy

RANDY: You know, in these times it seems like short-term volatility, it’s very difficult to be an investor and let your emotions—you know, keep your emotions out of it. So people always get sort of hung up on these short-term moves, they get kind of panicked or something like that. What are some of the things that we always remind our investors to keep in mind during these trying times?

LIZ ANN: Well, it’s funny, we have this dog-eared report that I initially wrote back in 2008, during the heart of the financial crisis, called "Panic is Not a Strategy." And, unfortunately, we’ve had to edit it and dust it off a few times since then, most recently until now, back in August. And I think a lot of the tenets of that hold true, which is if you think about it, and use just August as an example. If during that mini flash crash you had, if you just panicked and sold everything, you would have missed the huge rally on the upside again in October. There’s no way to perfectly time the exit and the entry, which suggests to investors you need to ride through it. The key point is having discipline. Make sure you have a plan. That plan should be relevant to you as an investor, your time horizon and your risk tolerance. And then stick with that plan, which often involves rebalancing. So when you do get big moves in the market, your portfolio then tells you maybe you ought to do something. Which, more often than not is going to mean you’re adding to asset classes that maybe are underperforming, and that kind of keeps you on the right side of things. Ultimately, though, diversification, and that discipline around it, is going to help you ride through some of these more difficult periods of time—like the one we’re in right now.

-- Randy Frederick and Liz Ann Sonders