'Doing Something' Because of Volatility Can Hurt You: Portfolio Manager Recommends Doing This Instead

Sticking to a long-term financial plan is hard.

Say you want to stay invested in value stocks, but after three years, growth stocks are outperforming, and suddenly, the grass looks greener on the other side.

Perhaps you plan to focus on income, but tech stocks start to fly high and grab headlines.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Long-term investing is about more than making regular contributions to investment accounts over a long period. To have the best chances for success, you also need a well-thought-out strategy that directly supports your financial goals, such as funding retirement, caring for parents or raising children.

You have to stick to a plan — even if at times it might feel as if the plan isn't working.

The enemy isn't the market, but your reaction could be

Every strategy goes through dry spells. Growth stocks, value stocks and individual sectors all have good years and bad. In many cases, it's hard to see the shift until it's already underway.

Research shows that too many people don't give a strategy the time it needs to work. A long-term perspective means investing for full market cycles — typically, 10 years. The strategy should be built with the realization that dry spells are inevitable.

But having a strategy can take you only so far. You have to stick to it.

When I see investors abandon their strategies, it's usually because they get impatient, scared or distracted by comparing their results with someone else's.

In these cases, the strategy might have met expectations, but investors sabotaged their own goals by changing the plan midstream.

Such knee-jerk moves can be as damaging to your long-term strategy as pulling out of the market entirely.

When investors feel the temptation to pivot, what should they pay attention to instead?

Keep an eye on this instead

Price is the loudest number in the market, but it's not the most important for certain strategies. What matters is what you own and whether it's built to last.

A good business has staying power. It has a solid balance sheet, consistent cash flow and a management team that knows how to operate in good times and bad. That's what gets you through periods of market volatility and uncertainty.

On the other hand, market stumbles often show which businesses were getting by on momentum and leverage instead of substance.

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It's never fun to watch prices fall, but if you understand that the companies underlying your investments are sound and well-managed, it's easier to put your faith in solid fundamentals when you have to ride out the inevitable down periods of a long-term strategy.

An adviser is there to keep you on track

Building portfolios and financial plans is only a small part of what good financial advisers do for clients.

During down periods, many investors' inclination is to do something. Sitting on your hands feels counterintuitive.

These moments are when a financial adviser can be most valuable. They will have spoken to you well before any periods of volatility to prepare you for the emotions you'll feel during rough patches.

They make sure you think about what you really want to accomplish and the level of risk you can truly tolerate in your investments.

A bad market doesn't mean your long-term strategy is inadequate. As long as it's sound and aligns with long-term goals, your investments can still help you reach them.

It's natural to feel worried or anxious when volatility seems to threaten your investments.

Acknowledge your feelings. Then take a deep breath, tune out the noise and stick to your plan.

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