Worried about stock market volatility? Get these financial basics right first

Tyler Kert
Tamarack Wealth Management

Over the past month, the market has seen some serious volatility. The stock market can be a rollercoaster—one day it’s up, the next it’s down, and headlines love to keep us on edge about potential crashes or economic problems. But before you spend too much time worrying about market performance, make sure that you have a strong financial foundation in place.

Stock market performance is important and does play a role in a long-term financial strategy, but if you don’t have the basics in order, there are more important things to be concerned about. Implement the following financial steps, and the markets will take care of themselves. 

Pay Off Credit Card Debt

In the investment world, guarantees are few and far between. But credit card debt does have a guarantee: lost money. If you’re carrying a credit card balance while worrying about stock market dips, you’re focusing on the wrong numbers.

Most credit cards charge interest rates of 15-25% or more. Even in the best years, your investment returns aren’t likely to beat that. Every dollar of credit card interest you avoid by paying down debt is a guaranteed return. Do yourself a favor and take advantage of those guaranteed returns by paying off your credit card debt. 

Take Full Advantage of Your 401(k) Match

If your employer offers a 401(k) match and you’re not taking full advantage, you’re missing out on additional guaranteed returns. For many years, I’ve told people that it’s free money. However, I’ve come to realize that a 401(k) match is not completely free. It does come with a price, and that is delayed gratification. There is an opportunity cost of contributing to your 401(k). The cost, however, is well worth the reward down the road. By investing in your 401(k) now, you are buying the ability to make future choices – the choice to retire early, the choice to go on that trip, the choice to drive that car, the choice to give to that cause, and the list goes on. 

If your employer offers a 4% dollar-for-dollar match on your contributions, that is a guaranteed 100% return on your investment. All you have to do is take advantage of it. If you aren’t taking advantage of your employer match, you really have no reason to complain or worry about volatility in the markets because you are willingly giving up 100% returns that are available to you.

Have an Investment Plan

It’s surprising how many individuals invest without considering the bigger picture of their financial goals and objectives. After all, if you don’t know what you are investing for, how can you know what to invest in?

If you’re investing without a game plan, you’re more likely to buy when everyone is making money and panic when the market drops. In other words, you’re buying high and selling low. Successful investing isn’t about reacting to daily headlines. It’s about sticking to a well-structured, long-term strategy.

Inside your financial plan, you will have already considered your goals and your risk tolerance. If you know that you can’t handle significant market swings, adopt an investment strategy that won’t subject you to that. Then you won’t be setting yourself up for failure by adopting a strategy that subjects you to unnecessary stress. There are times, however, when it’s more risky to avoid market risk than it is to take it on. If your goals and timeframe require a level of appreciation that you can’t find in a money market fund, you’ll need to take on some risk. Ultimately, risk is not a bad thing – it just needs to be managed and matched to each individual according to their needs.

Let the Market Take Care of Itself

Once you’ve checked off these financial building blocks, market performance matters far less. Why? Because you’ve positioned yourself for long-term success regardless of short-term volatility. The stock market will always have volatility, but history shows that it goes up over time. Before you worry about the market, make sure you’ve got your financial house in order. When you do, the market’s ups and downs won’t shake your confidence, they’ll just be part of the ride.

This material is for informational purposes only and does not constitute financial, investment, or tax advice. Please consult your tax advisor or financial planner to discuss your specific circumstances before making any decisions.

Tyler Kert, a licensed financial advisor and CPA, provides financial planning and tax consulting services at Tamarack Wealth Management in Cashmere, WA.