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Dealing With the Market's Latest Roller Coaster Ride

How should you respond when the markets throw you for a loop? With volatility expected to continue through year-end, we asked Michael Liersch, Merrill Lynch's head of behavioral finance, for his best advice.

IT'S HARD NOT TO ASK:  "SHOULD I SELL OR STAY PUT?" every time the Dow takes a nosedive. According to Michael Liersch, head of behavioral finance and goals-based consulting for Merrill Lynch Wealth Management, your decisions should always be made in a thoughtful way, with your long-term goals in mind.  Below, he offers some advice to help you deal with the ups and downs as the markets continue to respond to global change. 

Q. Whenever there's extreme market volatility, it tends to get a great deal of media attention. What's your take on the way that news reporting affects investors' reactions? 

A. At times like these, you hear a lot of people saying, "Put down your paper and turn off the TV." I think that kind of advice misses the point. What's happening in the markets is legitimate news, and it needs to be reported. But it's important to remember that the media isn't providing investment advice. It's providing a perspective on events, and one that's geared to a general audience, not a specific individual. That perspective may or may not be suited to your circumstances. 

It's always good to be informed, so long as you use that information to serve your needs rather than letting it dictate the choices you make. Just remember that the media is not accountable for your progress toward your goals. You and your financial advisor are. Use what you've learned from reading the papers and listening to all the TV analysis to start a discussion with your advisor about what makes sense for you to do now.

"Exposing yourself to uncertainty is the point of investing—if there's no risk, there's no reward, and you might as well keep all your money in cash." — Michael Liersch, head of behavioral finance, Merrill Lynch

Q. What do you tell people who ask you how they should respond when the markets drop? 

A. It's natural to have a reflexive reaction when markets start to act unpredictably. But before you make any decisions, it's a good idea to take a step back and remember why you invest in the first place. The obvious thing about volatility is that it makes investors feel uncertain. But at the same time, exposing yourself to uncertainty is the point of investing—if there's no risk, there's no reward, and you might as well keep all your money in cash. 

To me, you should be aiming for the right kind of uncertainty, one that's tied to what you want your money to accomplish over the long run, not what might happen in the markets today or tomorrow. For example, you may decide that lower prices give you an opportunity to buy some stocks you've been considering, or that this might be a good time to sell other stocks in order to extract the most value from them. But whatever choices you make, you're basing them on your needs, not on the market's ups and downs.

Q. Do you have any special advice for people who are uncomfortable with the heightened uncertainty they're feeling now? 

A. First off, make sure you've got a strong connection between the way you're investing and the outcomes you want for your life. One thing that makes this a lot easier is having a well-defined vision of your goals laid down on paper, not just floating around in your head. If you haven't written down your goals, now is a great time to do it. It's a document you can bring to your family, friends, or a trusted advisor to get their point of view. Talking it over with others can help you get to that calm, thoughtful mindset I was talking about earlier. And it will help you avoid making decisions out of fear.  

3 Questions to Ask Your Advisor

  1. Is this current market turbulence an opportunity for me to make some changes to my portfolio that could serve my long-term goals?
  2. Given these big changes in the market, am I still on track to meet my personal goals?
  3. How can I maintain perspective on what I’m reading and hearing about the markets?

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