8 Questions to Ask Your Financial Advisor During Volatile Markets

Protect your portfolio against market volatility.

As the S&P 500 ended 2018 down 6.2 percent after the fourth quarter’s wild price swings, it’s understandable to feel a little queasy about stock market gyrations. But one of the first facts about investing in stocks is to know that price swings are normal. Rich Guerrini, president and CEO of PNC Investments in Pittsburgh, says the market is experiencing “very aggressive volatility that we haven’t seen in a long time.” He says no one knows if this will continue, “but nothing is going to go down forever.” With the market’s current volatility, investors may have questions about their portfolios. Here are the top eight questions to ask your financial advisor.

Can we review my financial plan?

Guerrini says there’s a difference between a financial plan and funding a 401(k) or other investment accounts. While investing in a 401(k) is a good activity, there’s a contrast between having a formalized document that expresses a person’s goals, aspirations, risk tolerance and retirement date and just buying stocks or mutual funds with no goal for that money. Investors can use this time to talk to their financial advisors about creating a formalized financial plan. “There is a difference between what you’re invested in and what you’re invested for,” Guerrini says.

Why am I going to be OK?

People with formalized investment plans should ask their financial advisors to take a deep dive into their plan, and have advisors qualify why their goals are on track, says Craig Bolanos, founder and CEO of Wealth Management Group in suburban Chicago. “The only answer that’s acceptable on ‘why am I going to be OK’ is an answer that can be routed back to the client’s financial plan,” he says. The appropriate investments need to be based on when the person will consume the money they have invested. For example, parents with children entering college in the fall should have the cost of several semesters parked in a safe strategy, like a money market account, Bolanos says.

Can we review my risk tolerance?

Questions about risk tolerance are generally included in formalized financial plans, but often those questions are asked when the market is performing well, says Gage Kemsley, vice president of Oxford Wealth Advisors in Rio Rancho, New Mexico. The current volatility may help investors get a better handle of how much they really can stomach. Investors should compare their portfolio’s risk and volatility strategy to a common benchmark. “We should know exactly how much risk we’re taking, so that we can understand how much reward we should be expecting,” he says.

Where is my income-related money held?

People with long-term investment horizons can handle bumpy markets, but retirees need to preserve capital. Matthew Carbray, managing partner at Ridgeline Financial Partners in Avon, Connecticut, says at times like these, retirees need to have access to capital that they can draw down that isn’t tied to the performance of the stock market. He recommends a bucket strategy, having one to two years of money in very liquid accounts, such as cash or other conservative investments. For instance, retirees can pull income from short-duration bonds, so they aren’t drawing down their equity portfolio.

Is my cash earning the best rate?

As the Federal Reserve has raised interest rates, some online banking accounts have also increased yields on certificates of deposit and money market accounts. For investors who are holding cash for emergency funds or other reasons, they should look at these vehicles. Some of these accounts are offering rates above 2 percent, says Michael Ciccone, a certified financial planner at Tradition Capital Management in Summit, New Jersey. “If you’re going to have large amounts of cash, it makes sense to optimize that,” he says, adding that nonretired people should have between three to nine months of living expenses in an emergency fund.

How diversified am I?

Kimberly Foss, president and founder Empyrion Wealth Management in Roseville, California, says diversification across equity, fixed income and other investments can help investors ride out market volatility. Some areas of the market will perform better than others at certain times, she says, and diversification keeps people focused on investing for the long term and staying the course. Foss also recommends dollar-cost averaging, which is buying favorite investments irrespective of the market cycle; this helps smooth out returns over the long run.

What opportunities exist from the recent market action?

With the market swings, people with a long-term investment horizon should review how they can benefit from price drops. Josh Vail, president of 361 Capital in Denver, says the current environment could be a good entry point for investors with a longer view to look at certain equities. “Equities have an expected positive return over time, so if investors have been waiting for a time to buy this may be it,” he says. Specifically, he says investors should look at small-cap stocks and emerging markets. People with long-term horizons may also want to consider alternative investments that align with their risk tolerance.

How should I look at my fixed income allocation?

Blaine Rollins, managing director and lead portfolio manager at 361 Capital, says, “It definitely makes sense to increase one’s allocation to short-term Treasurys.” He says the current yield for the one-year Treasury note is 2.6 percent, up from 1.8 percent at the beginning of last year. That’s a meaningful pickup in yield, he says, and a good place for nervous investors to sit out the current equity volatility. In the bond market, he recommends to avoid riskier corporate credit in both the high-grade and high-yield sectors, since these corporate bonds will be punished unless the global trade and economic outlook stabilizes.

Ask your financial advisor these questions.

To recap, investors should ask their wealth advisors these questions to minimize their risks in a volatile market.

— Can we review my financial plan?

— Why am I going to be OK?

— Can we review my risk tolerance?

— Where is my income-related money held?

— Is my cash earning the best rate?

— How diversified am I?

— What opportunities exist from the recent market action?

— How should I look at my fixed income allocation?

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