How to Help Yourself in a Volatile Market
Volatility is an intrinsic characteristic of the stock market. When you think about your financial plan, it’s important to have a solid understanding of your goals and situation so you can think through how a volatile market may affect your situation. The volatility of the market over the last few months may have made you take notice but it’s not a time to panic.
We’ve now been in a prolonged space of volatility, at least among the more aggressive end of the equity universe. Notably we’ve seen some significant pullback of the highs which we were seeing in the late summer months. While reviewing your 401K, individual investments, college savings, or trust accounts, you may be seeing that relative to 60, 90, 120 days ago the value has changed quite a bit and not in a positive way. So, what do you do?
At North Main Financial Group, we communicate with our clients on a regular basis to adjust if necessary, to stay in step with their individual plans. That said, no good sermon has more than three points so we’re going to serve up three points to help you look at the markets and try to understand what’s going on. In short, we want to utilize the info that’s out there to help make the best decisions we can.
Understand the Global Macro
What is happening in the world that may be of significance? In short, we want to understand what’s happening from a global economic standpoint to help us understand where the market may be going. When talking about it from a macro standpoint, there are dozens if not hundreds of significant factors that are coming into play. Two factors that are playing into today’s market are tariffs and the Gross Domestic Product (GDP).
You may have heard some noise about tariffs. Tariffs, especially on a global level, have a significant impact on the market particularly when they are between some of the most significant economic powers on the planet. And depending on which side of the ledger you are on for a specific tariff, it may be positive or negative. Relative to your portfolio it’s important to recognize what those tariffs mean with respect to the global economic powers, and what that means for impact in the markets for specific investments. This helps you understand how a specific tariff may impact you and your portfolio. This is a complex scenario that your tax or financial advisor can help with.
Another item that factors into volatility is the growth element, or the current expansion rate, that we see among our most significant economic powers. Whether we are talking about the U.S., China, or the EU, we want to understand what their growth patterns are. Here in the U.S. we reference that as the GDP and want to understand, percentage wise, how we are growing. The GDP is constantly monitored to make sure it’s not too hot and not too cold. Then comes the understanding of how the GDP is relative to other global economic powers.
It means different things for different people. Asset allocation is the process of investing in different styles of assets when you are thinking about your overall portfolio. The essence of asset allocation – don’t put all your eggs in one basket. For example, there are cash and cash equivalents, bond or debt instruments, and equity style or stock related instruments. That’s being general, there are others beyond that, but those have the most prominence when studying to understand asset allocation. As you are thinking about your portfolio you need to make sure that you are appropriately allocated across different asset classes in order to fulfill your specific financial goals. A financial planner can help you with the appropriate percentage mix of asset classes to meet your needs.
Let’s briefly talk about the importance of non-correlated assets. Non-correlated assets tend to change in value independent of the core financial markets such as stocks and bonds. Broadly speaking if one is up, one is down and if one is down, the other is up. This is something you may want to look at for your overall thought process, especially during negative stock volatility, if you have an asset that is negatively correlated to the stock market.
Simply stated, wouldn’t it be nice if you had something that wasn’t going down in value but instead was appreciating in value. It’s an important concept. In an evaluation of your portfolio you might want to consider non-correlated assets, so you don’t have to make up as much ground when the market goes down. In theory, if you are doing it right, you shouldn’t have every investment moving up and down at the same time. Quite frankly there should be some going down and some going up…all the time. Your portfolio should look like pistons in an eight-cylinder engine. Again, this is where a financial planner can provide guidance based on your individual needs.
Make Adjustments in Portfolio
It’s not as easy as it sounds. People often understand they need to make changes but haven’t done so in months or even years. Due to any number of life events a person’s asset allocation or understanding about what direction they would like their portfolio to go, is drastically different than their reality. It’s important to note that adjustments should only be made if necessary. That’s a very important thing to keep in mind. People frequently feel compelled to make an adjustment, especially in times of negative volatility, that may or may not be applicable to them. This is where a financial advisor or tax advisor can help.
In this season of negative volatility think about the global economic macro, your asset allocation and adjusting in your portfolio. This will help you see the big picture and understand what, if any, changes are needed to help you reach your financial goals.
Interested in hearing more about this topic? You can listen to the full episode of the North Main Financial radio show on WSIC by clicking here: Asset Allocation w/Volatile Markets – 12/18/18
If you have questions about how real estate fits into your financial goals, or would like to talk with us further about our services, give us a call at (704) 987-1425 or visit us at www.northmainfinancial.com. If you wish to schedule an introductory meeting, we would be happy to meet with you at no cost or obligation to you.
These Blogs are provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of SagePoint Financial.