A To-Do List for Volatile Markets

Many investors have heard that they should do nothing with their portfolios during bear markets. But doing nothing may not be psychologically appealing

Christine Benz 11 February, 2016 | 3:56PM
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Rough market environments like the current one remind me of the old quote from value-investing legend Shelby Cullom Davis: "You make most of your money during a bear market; you just don't know it at the time."

Easy for him to say. Yes, great value investors like Davis make their money by buying when other investors are panicking. But there's always someone on the other side of those trades. Morningstar's investor-return data, which aim to reflect investors' actual gains and losses, show that many investors mistime their purchases and sales. Before stocks began to recover in early 2009, for example, investors were flocking to bond funds, and they kept right on buying them through much of stocks' recovery. Bonds weren't a terrible investment subsequently, but they sure did underperform stocks.

Many investors have heard that they should do nothing with their portfolios during bear markets, and sitting still is certainly better than selling out of stocks altogether, or making shifts based on fear rather than good investment sense. But doing nothing may not be psychologically appealing. Moreover, there are constructive actions investors can take to improve their portfolios and their total financial plans during periods of market turbulence.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Christine Benz

Christine Benz  is director of personal finance at Morningstar and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances.