Market Volatility Is Here To Stay – 3 Tips For Weathering The Storm
2 of the most volatile moments in the history of the equities have occurred in the past 10 years (Image courtesy of Yahoo Finance).
When it comes to the current equity climate, the words of Bob Dylan come to mind, “times they are a changing.” One need look no further than the S&P 500. In 2009, the index traded as low as 700 but in a mere 5 years has risen to a high of 1950 (as of this article). That’s 1,250 points in half a decade! In comparison, the stock market boom of the ’90s took double the time, 10 years, to show the same amount of growth: from roughly 350 to 1550.
The previous examples demonstrate that volatility is indeed on the rise. VIX, an index which measures volatility, serves to proves this point. By glancing at the chart above, you’ll see that the most volatile movements in the stock market have occurred in the last 10 years.
Market Volatility Is Here To Stay
Markets are always subject to corrections, equity indices not being exempt from this rule. In the 2000s it was “the dot com bubble” and then a decade or so later “the financial crisis.” Although we’ll leave market pundits to try to predict the exact moment, we are confident a correction will come at some point.
When corrections do happen, more times than not, they are swift in nature which normally results in increased market volatility. Consider how quickly markets across the world tumbled during the financial crisis. Although it’s not Murphy’s Law, the examples of a massive, non-correcting uptrend are few and far between.
What Does Increased Volatility Mean For The Casual Investor?
Although there has never been a “safe” period for investing, we feel that the current equity climate exhibits the potential for larger price swings than in the past, which is something investors might not be prepared for. The reasons behind these changes are unclear, nevertheless in order to properly survive new conditions one must adapt. For this reason we’ve put together a few tips which will help investors best approach these new market conditions.
Three Ways to Protect Your Investments from Market Volatility
1. Have A Plan And Don’t Panic
The financial crisis wiped out many a panicked investor; today’s record breaking highs in equities only add salt to the wound. The timing couldn’t have been worse as many baby boomers near the retirement zone watched their nest eggs shrink. The lesson learned is to be prepared for the worst and more importantly have a plan.
The beauty of today’s financial markets is that there are a plethora of alternative investments which actually perform well when stocks don’t, for example the foreign exchange market. An investment in the foreign exchange market can be advantageous as the movement of currency prices often do not correlate directly to the stock market, and in some instances can serve as a volatility hedge.
2. Diversify Your Portfolio
With the theme of volatility in mind, it makes more sense than ever to diversify an investment portfolio, which can be acheived in 2 ways. The first approach is to diversify within existing assets. For example, consider allocating a portion of your equity investments into funds or ETFs which are not directly correlated to US equities such as REITs, developing markets outside of North America, or developed markets in Asia and Europe.
If you are interested in learning more about how our forex investment fund services, or simply wish to discuss potential investment returns as well as risks, then don’t hesitate to contact us today. We are more than happy to schedule a time to speak with you in further detail about our fund management opportunities!
