Moody markets & your portfolio

For better or worse, money affects our emotions as well as our minds. Payday feels a certain way—but so does tax day. Find a stray $100 bill on the sidewalk and you cannot believe your good fortune; lose your wallet on vacation and you cannot believe your bad luck. To a great extent, managing our finances means managing our feelings.

This especially applies to investing in a volatile stock market. Investing always involves risk, but when markets behave erratically—surging with one news headline, plunging with the next—we tend to feel that risk more acutely or even exaggerate it.

Dramatic market swings can tempt us to make impulsive investment moves, whether to avoid losses or chase gains. The impulse is understandable, though hasty financial decisions carry their own kind of risk and can easily backfire.

So, what’s the key to keeping cool when markets are anything but? Read on to hear from Thrivent clients and financial advisors about how to navigate volatility with greater confidence. We’ll cover what volatility actually means, common investing mistakes to avoid when headlines get loud, and how to build a long-term financial plan that expects the unexpected.

Technically, market volatility refers to the rate and magnitude at which the price of an asset, security or market index fluctuates over a given period. One way investors measure volatility is the Chicago Board Options Exchange (CBOE) Volatility Index, or VIX. The VIX gauges how volatile the U.S. stock market is expected to be over the next 30 days, based on the prices of S&P 500 options.

The VIX and the S&P 500 are negatively correlated, meaning they tend to move in opposite directions. When markets fall, the VIX rises, and vice versa. (Note that you can’t invest directly in an index like the S&P 500.)

Of course, the Volatility Index is not a crystal ball. It merely puts a number on investor sentiment: how they feel about 30-day market prospects. That’s why the VIX is sometimes called the “fear gauge.”

Now it’s time to revisit the role that emotions play. “Greed and fear drive the market, which is counterintuitive to good investment practices,” says Joan Bartz, a Thrivent financial advisor in Glenwood City, Wisconsin. “When markets are doing well, people want more, so they often buy in. When markets fall, they tend to panic and sell.”

Bartz and her business partner, Thrivent Financial Advisor Katie Swenby, are candid about the role of emotions in investing. When markets get choppy, Bartz and Swenby discourage their clients from taking investing advice from the news, let alone the “fear gauge.”

“If it’s going to cause you to lose sleep,” says Swenby, “maybe turn it off for a while.” The same goes for anxiously checking your financial accounts during downturns—maybe don’t, if you can help it.

It’s not that current events are unimportant. Geopolitical developments, inflation data and surprising earnings reports all can contribute to market flux. However, “what’s happening in the news is not a direct reflection of what’s happening in your individual portfolio,” Swenby says.

Besides, market flux is just one of the many variables already factored into a strong investment strategy.

“Volatility is normal,” says David Royal, chief financial & investment officer at Thrivent, “so the goal isn’t to eliminate it. It’s to plan for it.”

Bartz and Swenby concur, reporting that clients with a long-term financial plan in place are less likely to panic during periods of volatility because they can see the bigger picture. For them, says Swenby, “volatility is part of the plan.”

What does that mean, exactly? Austen Wilson, a Thrivent financial advisor in Bellevue, Washington, puts it this way: “The goal of long-term investing is not to predict every headline but to build a strategy strong enough to endure them.” He and his team at Ascend National Wealth Advisors help clients build investing strategies that anticipate downturns so short-term declines won't derail long-term goals—especially retirement income.

One such client is Nancy Morgan. A retired pharmacist living outside Seattle, Nancy has watched the markets crash four times in nearly 50 years of investing: Black Monday (1987), the dot-com bubble burst (2000), the subprime mortgage crisis (2008) and the COVID-19 recession (2020).

All the ups and downs taught Nancy and her husband Dave some hard-won lessons about successful investing: “As we prepared for retirement over the years, I quickly learned several important financial principles,” says Nancy. “Pay yourself first, practice dollar-cost averaging, spend within your means and, most importantly, stay with the plan.”

Nancy says they hardly noticed Black Monday in the 80s. In addition to a financial plan, they also had the great advantage of time. Still decades from retirement, they disregarded the alarming headlines, kept to their monthly saving plan and carried on with life.

Eventually, the markets rebounded, as they often do.

Then they fell again, as they also do. “When the dot-com bubble burst in 2000, many people panicked—but we stayed with our plan,”Nancy says. “Fortunately, we were not heavily invested in tech stocks. That period reinforced the importance of diversification.

“While others worried about falling markets, I remember thinking that lower prices simply meant investments were ‘on sale,’” she adds. “We even invested some extra cash into the same mutual funds we already owned.”

Diversification is a financial term for “don’t keep all your eggs in one basket.” It means spreading your money (eggs) across different asset types, sectors or geographies (baskets) to reduce risk and limit the impact of any single investment’s downturn. In other words, it’s a hedge against volatility.

Wilson adds that a diversified portfolio helps investors avoid forced selling. “You might have more ‘losers’ than ‘winners’ right now,” he says. “However, if you have different positions spread across multiple allocations, you likely do have some ‘winners’ there, meaning we don’t necessarily have to sell anything at a loss to meet your objectives.”

Diversification works because different asset classes often react differently to the same market event. When stocks fall, for example, bonds or gold might hold steady or rise, softening the overall hit to your portfolio.

“It’s about mapping out the big picture and not getting too focused on one single account or what the rate of return is at that given time,” Wilson says.

The Morgans weathered their next major downturn in 2008. “The housing market crash was the first time I truly felt anxious about investing,” says Nancy. “Even then, the best course of action proved to be no action at all—just staying with the plan.”

No action at all? It sounds counterintuitive until you remember that volatility is a normal part of the economic cycle, not a reason to abandon your financial plan. Of course, no wealth advisor can predict the next pandemic or housing market crash. But, as Wilson points out, just because you can’t predict the future doesn’t mean you can’t prepare for it.

How you prepare for and respond to market volatility hinges on when you will need the money you’ve invested.

In general, the more time you have, the more volatility your portfolio can withstand. (Recall Nancy and Dave shrugging off Black Monday.) By the same token, investors closer to retirement tend to show lower risk tolerance, since they expect to need the money soon and don’t want it vanishing with the next news cycle. As Bartz puts it, “risk tolerance and time horizon are married.”

In reality, though, our subjective feelings about financial risk can easily diverge from our objective time horizons. This is when a trusted advisor can become instrumental in providing a more realistic picture of potential risks and rewards.

Bartz gives a common example: Clients approaching retirement often feel pressure to shift all their assets to conservative investments, even when a more balanced approach could serve their immediate needs while maintaining growth potential. In such cases, Bartz often recommends what she calls a “barbell strategy.”

“If they’re a moderate investor, we don’t want to necessarily move everything to moderate, but we’ll have some in moderate-conservative and some in moderate-aggressive,” she says. “By having some on each side, if the markets are volatile, they can pull from the moderate-conservative dollars. If the market’s doing well, we can refill it from that moderate-aggressive. But overall, it’s keeping them as a moderate investor.”

Occasional rebalancing—the process of realigning your portfolio back to its target asset allocation—is one effective way to keep your risk tolerance and time horizon happily married, especially after periods of volatility.

No portfolio is “volatility-proof.” Investing always involves risk. But then, so does not investing, not planning, not acting. Strange as it sounds, the prudent response to financial uncertainty is to plan for it. And then, perhaps, to recall an old prayer by theologian Reinhold Niebuhr:

“God, grant me the serenity to accept the things I cannot change, courage to change the things I can, and wisdom to know the difference.”

Cameron Brooks is a marketing strategist for Thrivent.

Prioritizing generosity through uncertainty

Thrivent clients use a donor-advised fund to support causes they care about—regardless of how the market performs.

Practicing generosity isn’t easy when we feel anxious about our finances. Fear of the unknown—from market volatility to job security and retirement—can thwart our best intentions. But it doesn’t have to. For decades, Keith and Mary Anderson, Thrivent clients from Woodville, Wisconsin, have prioritized charitable giving by structuring generosity into the heart of their financial plan.

It started in conversations with their Thrivent financial advisor, Joan Bartz. The Andersons were curious about increasing their charitable giving in retirement. Bartz first ran the couple’s numbers through a financial planning platform to predict possible retirement outcomes based on variables such as interest rates and life expectancy. The exercise gauges a client’s “probability of success” in reaching specific financial goals.

Through the process, the Andersons discovered they had more than enough saved to fund their retirement and generosity goals. This gave Mary and Keith the confidence they needed to keep giving.

Then, the Andersons established a donor-advised fund (DAF) through Thrivent Charitable to support causes they care about. Keith says the DAF has helped them give far beyond their initial investment, because the money has “grown like crazy.”

“Our main support goes to our local congregation, Luther Point Bible Camp, Lutheran World Relief and Luther Seminary,” says Mary. “We have also given support to a local homeless shelter and hunger needs. Having the DAF has allowed us to continue to support those organizations at or above our pre-retirement levels. As monthly expenses go up for us, it’s nice to know the DAF is already funded for giving and growth.”

Like all seasoned investors, the Andersons have seen their share of turbulent markets. But they haven’t let uncertainty steal their joy in giving or their faith in God’s provision.