With the Market So Volatile, Should I Buy, Sell, or Hold?

Given recent ups and downs in the market, I've been asked this question a lot lately. I believe there is only one right answer to the question, and the answer is “That depends”.

The correct answer will depend on each individual client’s situation. That's why for some clients I've been reducing equity exposure, with others I've added to existing holdings or purchased new asset classes, and still others I've advised to do nothing.

I'm willing to bet that if you pose this question to a commissioned broker, you'd probably get an answer that included plenty of macroeconomic/market statistics and little to no reference to your particular situation.

Conversely, a quality Certified Financial Planner will answer this question by asking you several questions before providing an answer. Some good questions may be:
How is your health?
How close are you to retirement?
What is your total net worth?
Do you have assets earmarked for a particular large purchase (i.e. vacation home, expensive college education, wedding)?
What is your overall asset allocation?
What does your Investment Policy Statement state as your level of risk?
Do you have a pension and is it indexed for inflation?
How many dependents do you have?
What is your marital status?
What are the potential tax ramifications of liquidating assets?
How much money have you recently added or subtracted from your accounts?
Do you expect any large inflows i.e. from sale of a business or inheritance?
How much equity do you have in your home?
What are your retirement income needs or goals?
What are your legacy plans?

Here are some real life examples to illustrate my point:

A 75 year old widowed client has a total net worth of $300K. He relies on his investments for 70% of his total living expenses. His overall health is excellent and he expects to live in his current home indefinitely. He resides a long distance from each of his 4 children and has a limited support system in his local area. In this case, I would consider selling some of his equity exposure to protect from downside risk that could cripple his finances in the case of a long-term care need in the future.

On the other hand, I would more than likely hold an equity allocation if, for example, the 75 year old had a pension indexed for inflation providing 75% of his living expenses and wealthy parents who were likely to leave an inheritance to him.

In a different case, I may be buying equities if the 75 year old had substantial wealth and intended to gift assets to his grandchildren through a generation-skipping trust.

As you can see, the "right" answer is different depending on the circumstances.

True Wealth Management requires an experienced professional capable of interpreting market dynamics in light of your specific life circumstances and financial status. If anyone tries to answer this question without considering your specific goals and total financial picture, you may get the wrong answer even though you're asking the right question.