Broker Check

In a Tumultuous Market Investors Need to Focus on What They Can Control

September 24, 2018

Big, sharp market swings like we have seen this year can be unsettling if not downright scary for many investors. Lulled into complacency by a nine-year bull market and more than two years without a serious correction, it’s likely that many investors started paying attention once again to their portfolios and 401(k) plans, which, studies have shown, is not good your financial health.


Checking Your Accounts Frequently Can Hurt Investment Performance

Research has shown that, the more investors check their investment accounts, the more likely they are to want to tweak their portfolios, which typically leads to underperformance.1 It’s this type of emotional involvement with one’s investments that often leads to costly behavioral investing mistakes, such as panic selling near a market low, exuberant buying near a market top, chasing returns, or simply trying to time the market.


The same study found that investors who don’t regularly check their investment accounts generate higher returns because they are more likely to stick with their long-term investment strategy and less likely to make any forced errors.  What these investors seem to understand is that, while this month’s market performance or calamitous economic event may seem consequential to our lives at the moment, the impact on the markets and, therefore, our portfolio over the long-term is so minimal as to cause nothing more than a tiny blip on our long-term investment performance. That and the fact that there is nothing we can do to control which way the market moves tomorrow or next week, so why bother?


How to Gain Control Over Investment Performance

However, that is not to say there is nothing you can do to improve your investment performance. There are several aspects of investing you can control and actions you can take to reduce portfolio volatility, minimize risk, reduce investment costs and minimize taxes – all of which can lead to a better investment experience.


Create an investment plan to fit your needs and risk tolerance

If your investment expectations reside in the current performance of the markets, it probably means you have yet to clearly define your long-term financial objectives. For any long-term investment strategy to have the best opportunity for success, it must be based on a thorough assessment of your needs, priorities, investment preferences and your tolerance for risk. Goals must be quantified with measurable benchmarks; and, as in the case of planning for lifetime income sufficiency, they must account for actual needs, economic factors, and life’s uncertainties.

From there, you can expect your portfolio performance to keep you on the path to your desired destination without assuming any more risk than is necessary and with minimal costs.


Asset mix is critical to long-term investment returns

Central to any investment strategy is the long-term mix of assets in a portfolio. Based primarily on the premise that not all assets move in concert, and that some assets are more volatile than others, the purpose of asset allocation is to capture the benefits of diversification by investing in assets that have a low correlation to each other. The practice of asset allocation seeks to achieve the optimum mix of assets that will generate returns linked directly to your long-term investment objectives and risk profile. Because of the fundamental relationship between risk and return, the asset mix of your portfolio can have a significant impact on your long-term investment returns.


Broad diversification reduces risk

Broad diversification seeks to capture the returns of different types of investments over time but with less volatility at any one time. Since it is very difficult to reliably identify winners before the fact, the most prudent investment approach is to maintain broad diversification and consistent exposure within various asset classes. When your portfolio is properly diversified it can capture returns whenever and wherever they occur while managing the risk-return tradeoff according to your risk profile.  Because your portfolio values change, it would be important to review your portfolio annually to ensure it is maintaining the optimum level of diversification for your investment needs.


Reduce investment fees

Among the more heavily scrutinized aspects of investment management is the amount of fees charged.  The fact is, in the long-term performance of investment accounts, fees do matter; and the failure by investors, or their advisors, to select investment options that offer the optimal balance of performance potential and investment expenses could cost them tens of thousands of dollars over the course of 20 or 30 years.


$100,000 Invested Over 30 Years

Assumed 6.5% Annualized Return

3% Fee


2% Fee


1% Fee




Minimize taxes

A sound investment strategy not only seeks to generate returns on your capital, it also seeks to preserve as much of your capital as possible to keep it working for you. One of the surest ways to preserve your capital is to reduce the amount of taxes you pay on investment income and gains. By incorporating tax-saving strategies into your investment plan, you can minimize the impact that taxes have on your long-term investment performance.


Taking advantage of tax-favored qualified retirement plans and the more favorable tax rates of long-term capital gains; avoiding mutual funds with high portfolio turnover in non-qualified accounts; diversifying your retirement income sources for optimum tax efficiency and minimizing required minimum distributions– are just some of the components of an effective tax strategy that can allow your money to grow faster and last longer. The Cause of Myopic Loss Aversion. August 2016