Remember Ritholtz's Advice During Next Market Sell-Off

“Something bad happens somewhere, and markets are unhinged. Once the noise subsides and the markets settles down, everyone wonders what the heck just happened,” writes Barry Ritholtz, chief investment officer of Ritholtz Wealth Management and columnist for The Washington Post. He references the Brexit vote and why it, or other macro events, shouldn’t affect your investment plan.

Ritholtz points out that “markets have on average swung 2 percent up or down once every 11 days since the year 2000”. Therefore, he asserts, the volatility in the wake of the Brexit vote should have come as no surprise. The columnist outlines a witty list of reminders for investors in times of market volatility. Here are a few:

  • Market surges and sell-offs are typical.
  • What sounds sexy usually doesn’t make you money in the long run.
  • Emotional reactions are bad for your portfolio.
  • The world is filled with random outcomes. “Even more so when people are involved.”
  • Adrenaline, it turns out, is not the basis of sound portfolio management.
  • Bull and bear markets have their own timelines. “They don’t care about your retirement, your saving for your kid’s college or the new house you want to buy.”
  • “Sometimes, Brexit happens.”

Ritholtz says, “it’s easy to confuse day-to-day noise with actual and significant signals. If you are merely reacting to the latest market action, then what you have it not a plan—you have an instinctual, fear-driven reaction, and it’s the makings of a disaster.”