Managing your Portfolio in Volatile Markets

Stock Mark Volatility

Market volatility invariably elicits a desire for portfolio adjustments. However, empirical evidence suggests that such reactive measures often prove detrimental. The onset of market downturns can induce heightened anxiety, thereby impairing rational decision-making. Consequently, a structured approach is imperative for investors seeking to manage their portfolios effectively during periods of market volatility.

Strategic Considerations for Portfolio Management:

Reassessment of Investment Objectives: Initiate a thorough review of your investment objectives and reaffirm your investment strategy's rationale. For investors pursuing long-term capital appreciation with an extended investment horizon, transient market fluctuations should not significantly deviate from the established financial trajectory.

Evaluation of the Financial Plan: A comprehensive financial plan is critical in navigating market volatility. A well-constructed plan demonstrates the impact of market downturns on long-term financial objectives. Professional financial advisors utilize these plans to present the resilience of diversified portfolios to market fluctuations, thereby mitigating unwarranted apprehension.

Capitalizing on Market Opportunities:

Tax-loss harvesting: Periods of market decline present opportunities for tax-loss harvesting, a strategy designed to offset capital gains through the realization of capital losses. (See blog article Tax Loss Harvesting Strategy (TLH)).

Portfolio rebalancing: Rebalancing involves realigning the portfolio to its target asset allocation and sub-allocation. While often counterintuitive, this process requires selling appreciated assets and purchasing depreciated assets, thereby maintaining the intended risk profile.

Buying opportunity: Extra available capital in liquid accounts, such as checking, savings, or money market accounts, enables investors to capitalize on depressed asset valuations.

Motivating factor: Market volatility can serve as a catalyst for initiating or revising a financial plan, thereby addressing potential inertia in financial management.

Market volatility is the norm, not the exception

Look at the Fidelity investments slide, Market Volatility is Normal: The Case for Staying Invested.

The red triangle represents the lowest percentage decline in the S&P 500 index for that year. On average, the S&P 500 index declines -13.7%. Retail investors tend to sell when the market is close to its biggest decline. 

The green triangle represents the highest percentage increase in the S&P 500 index for that year, with an average increase of 27%. 

The gray bar represents the return of the S&P 500 index for any given year, with an average return of 13.2%. 

Looking at the graph around 2016, you will see the S&P 500 down about 10% from its peak, up about 26%, and ending the year with a return of over 10%.

Some Key Takeaways

Volatility Is Normal: Market volatility is a natural part of investing. Investors should focus on long-term financial goals instead of reacting emotionally to downturns.

Stay Invested: While it can be tempting to withdraw money during turbulent times, staying invested can allow you to participate in market recoveries.

If you are anxious about market volatility, consider scheduling an appointment to review your situation.

If you are anxious about market volatility, consider scheduling an appointment to review your situation.

Investment advice is offered through Stratos Wealth Advisors, LLC,a registered investment advisor. Stratos Wealth Advisors, LLC and Synergy Wealth Management are separate entities.

Content in this material is intended for general information purposes only and should not be construed as specific investment advice or recommendations for any individual.  Please contact your advisor with any questions or for specific recommendations regarding your own circumstances. Investing involves risks including possible loss of principal. There can be no assurance that a specific strategy will yield a profitable result or protect against losses