5 Questions to Reassess Your Financial Plan in a Volatile Market

We create financial plans to help stay on track through market ups and downs—by setting time-based goals, identifying gaps, developing alternatives, staying disciplined, and adjusting if things change. A financial plan can help keep you grounded when markets get irrational. But if you have a financial plan and you’re still feeling worried about your investments, here are five questions to ask:

1. Do you have adequate emergency funds?

Make sure you’ve set aside enough to cover three to six months of spending for emergencies. Your emergency fund should be in liquid investments like short-term Treasuries, a bank savings account, or a money market fund. If you’re approaching or in retirement, consider boosting your emergency fund to a year’s worth of spending to add a little more financial and emotional cushion. If you don’t have an emergency fund, start one so that that emergencies or spending needs don’t distract from your long-term investing plans.

2. Has your cash flow been affected?

If your employment situation changes or your cash flow becomes less reliable, you may have to temporarily prioritize short-term needs over saving and then return to saving as soon as you can. If your cash flow isn’t affected, it’s generally best to stick to the saving and investment plan you already have.

3. Will you need to make a portfolio withdrawal in the near term?

Ideally, money that you’ll need in the next five years won’t be invested in stocks. But if it is, and you can’t put off a purchase or expense while the market is declining, you may need to gradually reallocate from riskier to more defensive and lower volatility assets to fund anticipated withdrawals. If you do need money in the near term, consider selling strong performing or overweight assets or investments before selling underperforming ones.

4. Have you taken on too much risk?

A down market can be a true test of your appetite for risk—and it may be lower than you thought. (If it’s higher than you thought, and you see volatile markets as an opportunity, read more here.) If you have a long time horizon for a particular investment goal, try to remember that weathering volatility is part of investing, and that dollar-cost averaging—the practice of investing a fixed dollar amount on a regular basis, regardless of the share price—lets you take advantage of down markets by buying more when prices are lower. If you have a shorter time horizon and find that your asset allocation no longer matches your risk tolerance and capacity to take risk, it’s probably time to reallocate, talk to a professional, or both.

5. Is it time to adjust your plan with the help of a professional?

Your financial plan should outline all of your goals, short and long-term—and how to accomplish each of them. That may require a variety of tailored individual strategies that go beyond a broad plan to save and invest. Talking through your plan with a financial advisor can help get you on track. If you’re especially concerned about market volatility or don’t have a solid investment or allocation plan in place, now is the perfect time to work with a professional to create one.

Bottom line: Stressful times, including periods of market turmoil, can try anyone’s resolve. A “five-point” systems check can help uncover vulnerabilities in your plan. If you don’t uncover any weak points, great—strategic asset allocation and a plan should keep your goals on track. If you do find problem areas, though, now might be a time for a deeper discussion with a financial professional.

About the author

Schwab Center for Financial Research