Market Volatility and Your Investments: When to Worry and When Not To
It is no secret that the stock market becomes much more volatile around the time when options expire. However, the market has been even more volatile than usual in the preceding months and years. The heightened volatility possibly stems from the coronavirus pandemic, the ensuing economic recession, and general uncertainty. If your portfolio is properly diversified, volatility shouldn’t be nearly as worrisome.
We strategically shift clients’ money to appropriate sectors and classes as the economy changes. Our full-cycle investing strategy involves active management as opposed to the traditional “set it and forget it” approach. Instead of concentrating clients’ assets in equities that are vulnerable to large drawdowns, we take the path less traveled.
Our irreverence for investing convention is centered on closely monitoring both domestic and global markets including economic environments and allocating client portfolios accordingly. We consider factors ranging from market troughs and peaks to periods of inflation, reflation, stagflation, deflation, and beyond.
Our overarching aim is to pave a path for long-term financial success rather than myopically stressing the short-term. Our financial advisors located in Canton, OH keep our finger on the pulse of the market conditions as well as that of the economy so you don’t have to.
Volatility is Inherent to Investing
It is often said that “scared money doesn’t make money.” This adage is certainly true in the context of investing. Volatility is inherent to stock, mutual fund, and ETF investing.
Unless your portfolio consists of bonds, CDs, and money market accounts, your money will be subject to market volatility. However, the market’s swinging pendulum is not necessarily a bad thing.
Reframing Market Volatility as a net Positive
Most investors view market volatility as a cause for concern as it has the potential to significantly reduce the value of their portfolio in a couple of days or even a single day. Instead of dwelling on the potential downside to market volatility, consider it as a net positive in the long run.
Markets naturally undulate as economic conditions, geopolitics, and technological innovation occurs. A volatile stock market has the potential to increase nearly as much on “green” days as it does on “red” days. This volatility is a large part of the reason why it may be in your financial interest to park your money in stocks.
In short, you are getting paid to embrace the risk inherent to owning potentially volatile securities. Just because the market slides one day or even across several weeks does not mean the trend will prove permanent. On the contrary, markets tend to undulate between green and red in the short-term yet gradually ascend across years and decades. The moral of this story is volatility could be construed as a net positive for your personal finances.
Market volatility may also be a net positive for your personal finances in the sense that sharp downward moves could present money-making opportunities to buy low and position yourself for possible financial gains in the months and years ahead.
Mind the Allocation
An investment portfolio heavily weighted toward stocks is that much more vulnerable to market volatility than a portfolio consisting of comparably stable investment vehicles such as those of the fixed-income variety. History shows stocks fluctuate to a considerable degree from year to year. Annual returns tend to be between -40% and +60% with few stagnant years. Compare this volatility with the fixed income market and you’ll find those investment opportunities are quite tame, typically providing returns in the range of -7% to +7%.
If you are approaching retirement, need money in the short-term, or are averse to risk, you may want to opt for a portfolio weighted toward bonds and other low-risk investment vehicles rather than stocks. Those who are younger and/or more tolerant of risk could weigh their portfolio toward stocks, mutual funds, and ETFs.
However, you don’t have to continue to rebalance your portfolio in accordance with the seemingly endless market, political and economic changes. Instead, your financial advisor can develop wealth management strategies tailored to your financial situation and overarching goals.
Our full-cycle investment strategy accounts for bear markets, bull markets, and markets in between these extremes. Instead of setting portfolio allocations and forgetting them, we re-analyze and rebalance as necessary. This active investment management along with comprehensive financial planning shifts money toward sectors in accordance with economic changes, focusing on long-term success rather than short-term gains.
Develop a Sound Investing Plan and do not Deviate From It
Investors with a plan typically stand a much better chance of making money in the long-term than those without an organized approach. If you are like most people, you may not have the time, energy, or knowledge of investing to develop a truly comprehensive plan. McGervey Wealth Management is here to help!
Meet with our fee-only fiduciary CERTIFIED FINANCIAL PLANNER™ Professionals and you will have taken an important first step in your quest for financial security. We are fiduciaries, meaning we owe a duty of care to our clients. Discuss your financial picture with our team and we can highlight the strengths and weaknesses of your current investment strategy, help you formulate the right plan moving forward, and rebalance your portfolio as necessary with proactive portfolio management.
We are here to liberate you from the constant analysis and micromanagement of investing. We closely follow the market as well as the economy, tech innovation, and geopolitical developments to strategically position our clients’ portfolios for the long-term. If you are nervous or fearful when market volatility inevitably occurs, we suggest you meet with our team rather than making a decision based on emotion.
At McGervey Wealth Management, we get to know you on a personal level and keep things simple, using common language everyone can understand. To learn more about when you should or shouldn’t worry about market volatility and your investments contact us today.