This isn’t going well.
The S&P 500 just joined the Nasdaq in correction territory (a 10% drop off recent highs). And now the latter is trending toward a bear market.
Virtually everything is down this year: stocks, bonds, most commodities, Bitcoin … even cash is down due to the worst inflation in decades.
The only thing up — besides inflation, of course — is volatility. The CBOE Volatility Index (VIX), a common measure of volatility, is up 67% since the beginning of the year.
If you’re long the VIX, congratulations! But if you’re like most investors, you’re feeling the pain right now.
So, what do you do about volatility in 2022?
Let’s start off easy…
Clear Your Head
Get up and take a walk. I’m serious.
We don’t make good decisions when our heads are spinning and our hearts are racing.
So, get up, take a walk and clear your mind. We need it for the next part.
My wife is a better skier than I am. But she has a way of getting in her own head. On our last trip, she fell on the first day — then she fell another half dozen times over the following three days.
Why? Because she kept thinking about the first fall.
You see it in football with kickers. When they miss a field goal, their psyche turns into a mess, and they’re just done. It’s time to start looking for a new kicker.
Trading and investing can be the same way if you’re not careful. It’s natural to let previous mistakes or investments gone wrong rattle you.
And when that happens, you might do one of two things:
- Freeze in fear like a deer in the headlights and do nothing.
- Or overreact and move too aggressively, taking unnecessary risks.
Stay Detached From 2022 Volatility
We want to stay objective. It’s easier said than done, of course. It goes against all our instincts and hard-wiring, but this is why investing is profitable.
If it were easy and risk-free, there would be no return. Or fun.
Look at your portfolio positions. Are these stocks you’re comfortable holding? If it’s a portfolio of reliable dividend stocks, the answer might be yes. Price fluctuations aside, the income stream is secure.
If these are high-quality growth stocks you intended to hold for years, maybe the answer is still yes.
If the stock is part of a broader strategy that has served you well or fills a niche in your portfolio, then again, the answer might be yes.
But if these were hot tips you got from your neighbor or the latest fly-by-night crypto, the answer is probably no.
Ideally, you had an exit strategy when you bought the position. But if you didn’t, you should put one together now.
Make the Hard Choice
I don’t put much stock in market forecasts, but it’s impossible to avoid them.
The market may reach a short-term bottom soon. Sentiment has become too bearish, too fast. We’re due for a short-covering rally.
But we have no guarantees. The market remains expensive by historical comparisons, and the Federal Reserve is draining liquidity out of the system.
The buy-hold-pray approach isn’t much of a strategy.
If you’re paralyzed with indecision whether to sell and take a loss or hold on in hopes of a higher exit price, consider splitting the difference. Sell half today with a plan of averaging out over the following days and weeks.
When I face a moment of indecision, that’s my usual way out. I’ll sell part of the investment and then evaluate before selling more. That way, I protect part of my capital while allowing for the possibility of recouping losses.
But more importantly, it gets me through the mental roadblock.
Takeaway for 2022 Volatility: Follow a System
Now, all of this is far easier when you have a system.
And systems don’t get much better than the one behind chief investment strategist Adam O’Dell’s Green Zone Fortunes.
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To safe profits,
Charles Sizemore
Co-Editor, Green Zone Fortunes
Charles Sizemore is the co-editor of Green Zone Fortunes and specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.
