11 ways to help stay sane in crazy market

Thad Johnson, AIF®, MBA222 2nd Ave SEHutchinson, MN 55350320-587-3444thad.johnson@flagship-advisors.com

Eleven Ways to Help Yourself Stay Sane in a Crazy Market

April 14, 2014

Keeping your cool can be hard to do when the marketgoes on one of its periodic roller-coaster rides. It'suseful to have strategies in place that prepare youboth financially and psychologically to handle marketvolatility. Here are 11 ways to help keep yourself frommaking hasty decisions that could have a long-termimpact on your ability to achieve your financial goals.

1. Have a game planHaving predetermined guidelines that recognize thepotential for turbulent times can help prevent emotionfrom dictating your decisions. For example, you mighttake a core-and-satellite approach, combining the useof buy-and-hold principles for the bulk of your portfoliowith tactical investing based on a shorter-term marketoutlook. You also can use diversification to try tooffset the risks of certain holdings with those ofothers. Diversification may not ensure a profit orguarantee against a loss, but it can help youunderstand and balance your risk in advance. And ifyou're an active investor, a trading discipline can helpyou stick to a long-term strategy. For example, youmight determine in advance that you will take profitswhen a security or index rises by a certainpercentage, and buy when it has fallen by a setpercentage.

2. Know what you own and why youown itWhen the market goes off the tracks, knowing whyyou originally made a specific investment can helpyou evaluate whether your reasons still hold,regardless of what the overall market is doing.Understanding how a specific holding fits in yourportfolio also can help you consider whether a lowerprice might actually represent a buying opportunity.

And if you don't understand why a security is in yourportfolio, find out. That knowledge can be particularlyimportant when the market goes south, especially ifyou're considering replacing your current holding withanother investment.

3. Remember that everything'srelativeMost of the variance in the returns of differentportfolios can generally be attributed to their assetallocations. If you've got a well-diversified portfoliothat includes multiple asset classes, it could be usefulto compare its overall performance to relevantbenchmarks. If you find that your investments areperforming in line with those benchmarks, thatrealization might help you feel better about youroverall strategy.

Even a diversified portfolio is no guarantee that youwon't suffer losses, of course. But diversificationmeans that just because the S&P 500 might havedropped 10% or 20% doesn't necessarily mean youroverall portfolio is down by the same amount.

4. Tell yourself that this too shallpassThe financial markets are historically cyclical. Even ifyou wish you had sold at what turned out to be amarket peak, or regret having sat out a buyingopportunity, you may well get another chance atsome point. Even if you're considering changes, avolatile market can be an inopportune time to turnyour portfolio inside out. A well-thought-out assetallocation is still the basis of good investmentplanning.

5. Be willing to learn from yourmistakesAnyone can look good during bull markets; smartinvestors are produced by the inevitable roughpatches. Even the best aren't right all the time. If anearlier choice now seems rash, sometimes the beststrategy is to take a tax loss, learn from theexperience, and apply the lesson to future decisions.Expert help can prepare you and your portfolio to bothweather and take advantage of the market's ups anddowns.

Words to ponder

"Investors should rememberthat excitement andexpenses are theirenemies. And if they insiston trying to time theirparticipation in equities,they should try to be fearfulwhen others are greedy andgreedy when others arefearful."

--Warren Buffett

"Most of the time commonstocks are subject toirrational and excessiveprice fluctuations in bothdirections as theconsequence of theingrained tendency of mostpeople to speculate orgamble ... to give way tohope, fear and greed."

--Benjamin Graham

"In this business if you'regood, you're right six timesout of ten. You're nevergoing to be right nine timesout of ten."

--Peter Lynch

Page 1 of 2, see disclaimer on final page

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2014

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is notspecific to any individual's personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purposeof avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or herindividual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believedto be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any timeand without notice.

6. Consider playing defenseDuring volatile periods in the stock market, manyinvestors reexamine their allocation to such defensivesectors as consumer staples or utilities (though like allstocks, those sectors involve their own risks, and arenot necessarily immune from overall marketmovements). Dividends also can help cushion theimpact of price swings. According to Standard andPoor's, dividend income has represented roughlyone-third of the monthly total return on the S&P 500since 1926, ranging from a high of 53% during the1940s to a low of 14% in the 1990s, when investorsfocused on growth.

7. Stay on course by continuing tosaveEven if the value of your holdings fluctuates, regularlyadding to an account designed for a long-term goalmay cushion the emotional impact of market swings.If losses are offset even in part by new savings, yourbottom-line number might not be quite sodiscouraging.

If you're using dollar-cost averaging--investing aspecific amount regularly regardless of fluctuatingprice levels--you may be getting a bargain by buyingwhen prices are down. However, dollar-costaveraging can't guarantee a profit or protect against aloss. Also, consider your ability to continue purchasesthrough market slumps; systematic investing doesn'twork if you stop when prices are down. Finally,remember that your return and principal value willfluctuate with changes in market conditions, andshares may be worth more or less than their originalcost when you sell them.

8. Use cash to help manage yourmindsetCash can be the financial equivalent of taking deepbreaths to relax. It can enhance your ability to makethoughtful decisions instead of impulsive ones. Ifyou've established an appropriate asset allocation,you should have resources on hand to prevent havingto sell stocks to meet ordinary expenses or, if you'veused leverage, a margin call. Having a cash cushioncoupled with a disciplined investing strategy canchange your perspective on market volatility. Knowingthat you're positioned to take advantage of adownturn by picking up bargains may increase yourability to be patient.

9. Remember your road mapSolid asset allocation is the basis of sound investing.One of the reasons a diversified portfolio is soimportant is that strong performance of someinvestments may help offset poor performance byothers. Even with an appropriate asset allocation,some parts of a portfolio may struggle at any giventime. Timing the market can be challenging under thebest of circumstances; wildly volatile markets canmagnify the impact of making a wrong decision justas the market is about to move in an unexpecteddirection, either up or down. Make sure your assetallocation is appropriate before making drasticchanges.

10. Look in the rear-view mirrorIf you're investing long-term, sometimes it helps totake a look back and see how far you've come. If yourportfolio is down this year, it can be easy to forget anyprogress you may already have made over the years.Though past performance is no guarantee of futurereturns, of course, the stock market's long-termdirection has historically been up. With stocks, it'simportant to remember that having an investingstrategy is only half the battle; the other half is beingable to stick to it. Even if you're able to avoid lossesby being out of the market, will you know when to getback in? If patience has helped you build a nest egg,it just might be useful now, too.

11. Take it easyIf you feel you need to make changes in yourportfolio, there are ways to do so short of a totalmakeover. You could test the waters by redirecting asmall percentage of one asset class into another. Youcould put any new money into investments you feelare well-positioned for the future but leave the rest asis. You could set a stop-loss order to prevent aninvestment from falling below a certain level, or havean informal threshold below which you will not allowan investment to fall before selling. Even if you needor want to adjust your portfolio during a period ofturmoil, those changes can--and probablyshould--happen in gradual steps. Taking gradualsteps is one way to spread your risk over time as wellas over a variety of asset classes.

Remember that whilethey're sound strategies,diversification, assetallocation, anddollar-cost averagingcan't guarantee a profitor eliminate thepossibility of loss.

Page 2 of 2