Most of us love instant gratification, finding the immediate rewards remarkably fulfilling. While that does feel phenomenal in the moment, it is usually something devoid of substance and quality. When we work hard for something and/or maintain patience for it to develop to its full potential, the reward we reap is that much greater. The same goes for investing, even when it is a volatile market. Patience, strategy, and time are ESSENTIAL when investing, and a volatile market is the perfect opportunity to hone your skills of patience, discipline, and keeping your eyes on the end goal.
It is no surprise that following the market dip in 2020 and the economy’s spiked inflation status of the last couple years, (though inflation finally seems to be calming down slightly, according to Forbes), the current market is volatile. Let me elaborate on what I’m referring to here: there is always price movement in the market, but when the prices move dramatically, quickly, and unpredictably, that can create worry for investors as the chance for losing money is increased, especially if they don’t stay the course and submit to time.
However, a volatile market is no reason to panic! Understanding the situation and following the right strategies can help get one through to the other side. A volatile market presents a specific set of advantages and disadvantages, and you need to be aware of both and how you fit into the equation, depending on how near to retirement you are.
Volatility presents several advantageous opportunities for investors. You can invest with [relatively] more risk right now, as “volatility brings increased opportunity to profit in a shorter amount of time”, which Charles Schwab points out to us in their article about volatile markets. The article goes on to say that “certain trading strategies involving shorter trading time frames have shown to work more effectively in volatile markets”, which is especially relevant for those working with a shorter time horizon in their investment plans, such as folks leaning closer to retirement age. Investors under the age of 40 do have the added advantage of more time. Some people panic in times of market volatility and mistakenly oversell, thinking they’re avoiding further losses in their portfolio, but the aforementioned article explains that this action would only lock in their losses rather than allowing for them to turn around in time, experience good trading days in the future, and receive the benefits of long-term compounding.
Of course, there are also some disadvantages to be aware of in these types of situations. While volatility can increase the chance to generate an above-average profit in a shorter amount of time, one also then runs the risk of losing a greater deal of capital in a relatively short period of time, affecting those closer to retirement more than others. Additionally, volatility drag could negatively affect even your long-term wealth if the various market drops cause your portfolio to grow from a new and smaller starting point than what it was before. This article by Morningstar, a well-known and highly regarded American investment and financial services company, goes into some detail regarding volatility drag and geometric returns.
Historically speaking, while some market downturns have lasted years before recovering, many are relatively quick. MorningStar published an article earlier this year on average market comebacks that shows an average of about 7-8 months for 20 of their asset categories. See their article to examine further related data and statistics of other investment categories.
Having historical information on economy bounce backs allows for confidence and aids in determining the right strategies for your time horizon and goals and the specific assets with which you’re working. Set aside any panic and emotional distress, and instead focus on the beneficial results of the long run. It is a great idea to talk with your financial advisor to go over the best strategies for you and to become as informed as possible. If you haven’t yet and are interested in starting your investing journey, talking to an advisor is the best first step in order to receive experienced guidance in this domain of exciting opportunities!
Let’s highlight a few things worth keeping in the forefront of your mind when contemplating the winding course of a volatile market: It is a good idea to keep a firm hold on the long-term perspective and exercise the discipline of sticking to your original plan. (That is certainly easier said than done sometimes, but don’t forget that age-old adage: “patience is a virtue”!) Make sure to remove emotion from the equation. One of the best ways of mitigating volatility is to diversify your portfolio. Talking to a financial professional or your CPA is your best bet as you’re analyzing the path and options ahead of you, including the option stated in the aforementioned Charles Schwab article of risk control measures that can be put in place if needed, such as stop losses, especially if your time of retirement is nearing. Understanding your time horizon and the associated risk level(s) is paramount to aligning them appropriately. If you are looking for a financial professional, don’t hesitate to reach out to our team to get started! We are here to help you.
At the end of the day, volatile or not, when you’ve invested in the market and taken the appropriate measures to do so properly for your particular circumstance, sit back, relax, and remember that patience remains the name of the game!
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WestPac Wealth Partners LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. CA Insurance License Number - 0H47704. | Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. | 2023-160642 Exp. 08/25
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