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How High Net Worth Investors Navigate High Market Volatility

How High Net Worth Investors Navigate High Market Volatility

17 Oct 2022

As you read this sentence, the stock market continues to be volatile. It almost seems like it has always been that way. However—it might surprise you to read this, but—there are potential upsides to the current economic situation, as well. Some of them, when approached strategically, may offer significant possible gains. 

In fact, depending on your financial situation and goals, these inflationary periods of high-interest rates could present opportunities for increasing your net worth.

Join us in exploring the following topics:

  • The Stock Market Often Behaves Cyclically
  • Timing the Markets Doesn’t Work
  • Diversification Fortifies Portfolios During Volatility
  • Invest Time Alongside Your Money

The Stock Market Often Behaves Cyclically

The stock market, like all markets, tends to move in cycles. Like an ocean, it is almost never completely still. Instead, it is typically moving in one direction or another somewhere, going up and down regularly overall. As a result—although there are accelerating or slowing factors, at times—we can generally expect the market to follow a certain pattern over time.

Nearly any financial advisor in Akron or Canton, OH can tell you the many reasons for this regularity. For instance, There will always be varying amounts of investors who do better than others in any given year or quarter. Sometimes it is because they have access to insider information (which is illegal). However, often they are simply fortunate with regard to picking stocks. 

Information is not always shared equally by all investors. In some cases, someone may happen to work at a company, witness repeatedly awful management mistakes, and reason that it is time to consider selling off their long position. Stock prices should reflect what the public thinks about those companies’ prospects, but those opinions’ accuracy is limited to the scope of information supporting them at the time.

 

Are Your Tax and Estate Plans Ready for the Impact of Potentially Higher Taxes in 2023? Let Us Help. 

 

Timing the Markets Doesn’t Work

Some people believe that there is a hidden secret to investing. They think that if you can only figure out when the markets will go up or down, you will be able to see endless returns. If you have ever had this thought, you are not alone. In fact, they may be partially right: There is something that seasoned investors know that they do not.

Those with extensive experience investing (alongside much of the financial industry) can tell you that timing the market is a dream. It is impossible to predict where stock prices are going, long-term, at any given time. If it were possible, at least ¾ of advisors, brokers, and CPAs today would be retired and living in luxury full time. 

When someone claims to have a surefire formula; a window into the future, be skeptical: The probability of their long-term success is very low. Some people have collected a windfall from a lucky guess… but their doing it again is about as likely as getting struck by lightning on two separate occasions (in two different geographical locations).

Again, if a consumer investor sees a company’s leadership making astoundingly poor decisions after astoundingly poor decisions in headlines, that may suggest an eventual decline for their stock. There is no crystal ball for anticipating the market with 100% accuracy, however. The best mortals can manage are well-informed estimates. 

Diversification Fortifies Portfolios During Volatility

In the financial world, a good offense is not always the best defense. Instead, getting proactive tends to be extremely effective. Planning ahead, by rebalancing your portfolio for the likeliest economic weather (such as rising interest rates, during inflationary periods) is often preferable. One of the best rebalancing tools is diversification. 

Financial diversification is the process of spreading your investments across different types of assets. For example, you might opt to hold—not just stocks and bonds, but—real estate and commodities (e.g., natural gas) assets, as well.  This helps to reduce risk by investing in assets that may perform differently during volatile markets.

Should one type of asset lose value, you are protected against losing value throughout your portfolio. It may help to think of a large ship’s bulkheads, sealing off a flooded compartment to keep the vessel afloat. It bears emphasizing: Diversification is not a magic shield. It cannot eliminate the potential for losses, altogether. 

With that said, it can significantly mitigate their potential impact. In some cases, it has also been known to reduce their likelihood. These are some of the reasons why we cannot recommend keeping a non-diversified portfolio through today’s market volatility, in particular. If you have not balanced yours this way, please consider doing so.

Invest Time Alongside Your Money

three hour glasses and stacks of coins representing investing

Investing, at its core, is a long-term endeavor. While some assets can mature faster than others, we have to resist the urge to view them as a roulette wheel, generating instant returns. Investors who want to increase their wealth over time must learn how to manage both their emotions and their expectations during volatile periods. 

As with any long-term commitment, accepting the ups and downs that come with investing is an essential lesson. If you have ever sailed on an ocean liner, endured a storm… and then arrived at your port of destination safely, the concept is essentially the same: There is no route to a larger nest egg without passing through squalls, occasionally. This reality factors into McGervey Wealth Management’s Full Cycle Investment strategy. 

Put another way, we have to make peace—not just with investing our money, but—with investing our time. This does not require watching a stock ticker around the clock (at all). However, it does mean making the conscious choice to let investments mature. Gloomy economic headlines can make knee-jerk reactions tempting at times, but like oceanic weather forecasts, they often change from day to day.

 Strategize Your Asset Allocation Plan 

A tactical asset allocation plan can help you determine how to diversify your investments to keep on track toward your financial goals. It should factor in your risk tolerance level, time horizon (for example, your future retirement date), current market conditions, and future projections for your investments. 

We might be your best option for high-net-worth financial planning in Akron-Canton, Ohio. Contact us today to find out what a comprehensive financial plan, our strategic retirement planning, experienced tax planning, portfolio management, and more can do to help you achieve your financial goals.  

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More About the Author: Michael McGervey

Michael serves as a resource to executives and business owners, assisting them in making proactive and informed personal financial decisions. He is also a member of McGervey Wealth Management’s Investment Committee and is responsible for investment research as well as the execution of the firm’s portfolio strategies.