Here’s a post I did on social media:  I feel literally sick when I hear pundits “explain” the reasons behind the market decline.  They give astrologers a bad name.  If the market went up, their “explanations” would be equally glib.

When there’s a big drop in the market, a somber news anchor typically brings in an “expert” to tell us “what’s going on.”

It’s all nonsense and a scam.

Here’s sound advice for dealing with market volatility.

Do nothing

If you have followed my recommendations and are in a globally diversified portfolio of low management fee index funds, ETFs or passively managed funds, in an appropriate asset allocation, do nothing.  Short-term market fluctuations should be meaningless to you.  You’re in this for the long haul.

If you are 40 and saving for retirement, your focus should be on the value of your portfolio in 25 years.  What difference does it make if it is up or down today?

Ignore the media

There are no “experts” who can predict the direction of the market.  Ignore their musings.

While they dispense their opinions freely (and with great confidence), here’s what they never mention:  Their track record for making accurate predictions.

Focus on what you can control:  Your asset allocation.  Low fees.  Diversification.  Deferring or mitigating taxes.

The fluctuation of the market is not within your control.  Pay no attention to it or traditional financial media.  There is a correlation that you should know about.  The more volatile the market, the more the financial media disseminates blatantly misleading information, hoping you will take action to benefit its advertisers (brokers and actively managed mutual funds).

You haven’t “lost” anything

There’s a big difference between realized and unrealized losses.  You haven’t lost anything until you panic and sell, thereby incurring a realized loss.

Get perspective

Bear markets (defined as a 20% drop from the highest point to the lowest point) occur about once in 3.5 years.  They last a little over a year.

In the 9 recessions since 1957, the market had positive returns one year later in 8 of them.  Investors who did nothing for three years in all of these recessions were handsomely rewarded.

Treat short-term losses as noise. Ignore them.

Turn off the financial news.  Stay the course.

Resource of the week

This blog by Ben Carlson will give you perspective on market volatility.