When Markets Get Turbulent, Trust Your Instruments

A disciplined approach to navigating volatility and staying aligned with your financial goals is required for success. It’s easy to invest when everything is clear and good times appear to be on the horizon.

THE PROBLEM: FINANCIAL DISORIENTATION 

In volatile markets, investors are bombarded with conflicting information—headlines, opinions, and emotional reactions. This often leads to poor decision-making and deviation from long-term plans. Financial disorientation is comparable to spatial disorientation, which occurs when a pilot is unable to determine the position, motion, or attitude of the aircraft. This can be based on actual situations or visual misinterpretations. Both financial and spatial disorientation lead to a loss of situational awareness (SA). SA involves your perception of the current environment, the ability to process inputs and critical factors, and the logical progression to understand what is expected to occur in the future. Lose this ability and you’ll quickly find yourself in a bad situation—one where you can’t afford to make a mistake yet, without SA, the chance of making a poor decision increases substantially.

A LESSON FROM AVIATION 

In aviation, it’s easy to fly in clear weather.

A defined horizon and numerous navigational tools (charts, instruments, air traffic controllers) keep you safe and on course. 

When a pilot’s senses mislead him. it rarely happens on a clear, beautiful day. It’s usually at night, over water, or in clouds—times when the horizon isn’t clearly defined because of the surrounding conditions. If not recognized and corrected quickly, disorientation almost certainly leads to the loss of situational awareness!

The solution is simple but critical: trust the instruments, not your senses.

THE PARALLEL TO INVESTING 

Investors face the similar challenges. When markets feel uncertain, emotions can override logic. The key is to rely on a well-constructed financial plan that was designed to guide you through disorienting conditions. It’s your trusted instrument!

WHAT TO DO DURING VOLATILITY

Recognize volatility as a time where numerous events have, or likely will, stimulate your senses in ways that cause confusion and conflict. 

When you get a feeling that says, “Don’t just stand there, do something!” (our body’s natural plea for action), counter it with “Don’t just do something, stand there!” This reminds us to stop and think before acting. Take a deep breath and focus on the appropriate reliable sources you can count on to provide you with a measure of stability. 

• Open your plan and look at the assumptions. Have any changed significantly?

• Check your Emergency Fund. Adequate funding provides reassurance.

• Revisit your long-term goals. Use them to help provide reassurance. 

• Stay disciplined in your strategy. It was created to weather these conditions.

• Avoid reacting to short-term noise. Things are rarely as good or bad as they initially appear.

• Remember the planning process. Volatility was a consideration. 

• Review your risk tolerance. Is the stress level significantly higher than you anticipated?

FINAL THOUGHTS 

Trust your instruments. Trust your training. Trust your plan.

Find your horizon and move forward with confidence.

If you're looking for someone to Champion your financial future,

contact me for a free consultation!