The stock market can be very volatile. The market will move up and down especially over the short term. The market will dip 1 or 2% in a day. A correction of 10% or more will happen. Will the stock market crash? The answer is yes, but I have no idea when. As an investor, I have learned how to deal with volatility in the stock market.
The first step is to have a plan. For each of my investing accounts I have a plan. In the Traditional IRA I am currently building up my position in Vanguards Total Stock Market Index Fund (VTI). This account is only funded through dividends and options premium so the investing is not consistent. In the Roth IRA, I dollar cost average into certain positions every two weeks. For every $100 contributed the breakdown is as follows:
- J.P. Morgan Equity Premium Income ETF (JEPI) – $20
- Nationwide Risk Managed Income ETF (NUSI) – $10
- Vanguard Growth ETF (VUG) – $10
- Amplify CWP Enhanced Dividend ETF (DIVO) – $15
- Invesco NASDAQ Next Generation 100 ETF (QQQJ) – $5
- Schwab U.S. Dividend Equity ETF (SCHD) – $5
- The rest can be invested based on the current fair value of the positions in the account.
The 401k contributions are automatically distributed on a preset allocation which currently is as follows:
- Vanguard Total Bond Market Index Fund – 10% of each contribution
- Vanguard Total Stock Market Index Fund – 75% of each contribution
- DFA Commodity Strategy Portfolio – 5% of each contribution
- Vanguard Total International Stock Market Index Fund – 10% of each contribution
The taxable account is also set up to automatically invest contributions. This account is a little different than the 401k. Instead of taking a percentage of each contribution to put toward each investment, each investment has a target weighting percentage. The contributions will be put toward the investments that are below the target weighting first. The target weightings in this account can be seen here: https://m1.finance/aiwtOS-Tlm9P.
The next part of plan for dealing with market volatility is to know what I own and how much I would be willing to pay for a share of each of my positions in my accounts that I actively manage. In the Traditional IRA and Roth IRA accounts I maintain a spreadsheet that has what I consider to be the fair value for each of my positions. When the market drops I can quickly look at the spreadsheet to determine which of the positions in these accounts is undervalued so I can add money accordingly. This reduces the amount of emotion that goes in to making the decision on which position to buy more shares.
The 401k is more passive and I just follow a dollar cost average strategy. Every two weeks money is added and purchases are made regardless of what the market is doing. I follow a similar strategy in the taxable brokerage account, dollar cost averaging every month. This account has more speculative positions and I rely less on valuation.
Having a watch list also helps me to handle volatility in the market. I maintain a list of stocks that I have some interest in possibly purchasing. I have determined what I consider fair value for the stocks on my watch list. If the market drops I can check my watch list to determine if any these stocks are undervalued. I may decide to enter a position if it has a good margin of safety. The watch list is also a tool I use for options trading. The watch list helps me to reduce the amount of emotion that goes into making a decision to enter a new position because the research and valuation has already been done.
Having a plan is vital for dealing with market volatility. The market will go down at some point whether it is a couple percentage points in a day, a correction of 10% or more, or a full blown market crash. My plan helps me to reduce my emotions when the market crashes. Instead of panicking when the market goes down I see it as an opportunity to buy when stocks are on sale.
On a side note, I have added a Recommended Resources in the menu. It currently is a work in progress. It will contain blogs and YouTube channels that I enjoy as well as some sites that I use. I hope you take the time to check it out.
*Disclaimer – I am not a financial professional. The information shared here should not be considered financial advice. I am just a factory worker sharing my experience as I strive to achieve financial freedom. Before investing or making any financial decision do your own research and due diligence or consider seeking the advice of a financial and/or tax professional.
Here are some of the businesses that I use that I thought some of you might be interested in.
Lolli has a variety of stores that it is affiliated with and offers rewards for shopping at these stores. I use Lolli when I shop on Chewy and I get bitcoin as a reward. Who doesn’t want free bitcoin! If you are interested in Lolli and want to help support the blog here is my referral link: https://www.lolli.com/share/XP7gxDgqC4
I use M1 Finance for my taxable growth account. M1 Finance offers promotions for signing up. At the time of writing this post, the promotion is for $50. These promotions vary from time to time but is usually a $10 bonus. If you are interested in M1 Finance and want to support the blog here is my referral link: https://m1.finance/ktIiFeOI5zDr
Varo Bank is one of the banks that I use. From time to time the bank will run promotions. Currently, you can earn up to 3% on your savings with Varo, if you meet certain requirements. If you are interested in checking it out, here is my referral link: https://bank.varomoney.com/signup?r=William360
I use the free version on trackyourdividends.com. This is a quick an easy way for me to track my estimated annual income from dividends.
If you use the referral links listed above I could receive compensation. Please take the time to read the terms and conditions before signing up.