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Keep it in perspective
With the recent impact of COVID-19 and the wide-spread of the virus it precipitated a sharp drop in the stock market and a historical plunge in bond yields, sending us into a bear market. The question is how long the correction will last and what impact government stimulus will have on economic growth, employment, and corporate earnings.
As an investor it’s important to understand the impact of the choices you make under volatile markets. Volatility is the short-term fluctuation in price or value of a specific investment or financial market. It’s nearly impossible to eliminate, and most individuals understand that some level of volatility comes with the territory when investing for the long term. While these fluctuations can be unnerving, they can also present opportunity. Balancing more aggressive investments with lower-risk options can help create a more stable investment portfolio designed to take advantage of the potential opportunities created by market fluctuations.
Market dips, even the most severe, are generally short-lived. Using the past three decades as an example, the stock market experienced numerous ups and downs along the way. Despite periodic declines, the financial markets have historically tended to rise over the long term.
Keeping volatility in perspective and being prepared for market shifts may help you stay committed to your long-term goals—which could help increase your potential return over time.
Since volatility is the short-term fluctuation in price or worth of a specific investment or financial market:
- It’s nearly impossible to eliminate, but it always has, and always will be, the pulse of the market
- While easy to focus on volatility as a single point in time, you may lose sight of the fact that over the longer term, it has helped create opportunity
- Balancing riskier investments with lower-risk options can help to create a more stable investment portfolio designed to take advantage of the potential opportunities generally created by market fluctuations
Remain committed to your long-term goals.
To quote former President Franklin Roosevelt, “the only thing we have to fear is fear itself”. Volatility (a.k.a. fear index) may indicate trouble but what is important is to understand that volatility in itself is not risk; it is noise. An interim trouble that an investor must be willing and able to withstand and absorb to achieve its potential objective.
Balancing risk and reward.
Investors need to understand that all investments involve some level of risk. Understanding the relationship between risk and reward is an important element in building your investment portfolio. The bottom line is the higher the risk, the higher the potential return. You need to know your objectives, time horizon, and comfort level in order to gauge the appropriate risk for your investment goals.
This chart highlights the different levels of emotion that can be felt during all aspects of the market cycle.
Source: https://optionalpha.com/the-14-stages-of-investor-emotions-and-trading-psychology-10433.html
Staying the course and revisiting your goals is critical to remaining invested during times of heightened stress.
Market volatility is inevitable. However, by increasing awareness around the ups and downs of the market, maintaining your long-term goals, and taking the emotion out of investing, you can better position yourself to take advantage of the opportunities that may arise. Your financial professional is an excellent resource, as you look to review your investment plan and make any necessary updates or revisions.
About the author
Greg Webster
Greg Webster is the Head of Eagle Strategies, a subsidiary of New York Life, and is a Vice President for New York Life responsible for the development and execution of Eagle Strategies’ business.
Greg brings to Eagle Strategies over 25 years of experience in insurance, wealth management, and banking including a wide range of roles in finance and business operations.
Prior to joining New York Life, Greg was a Senior Managing Director for HEADWATERS l SC, LP. In this role, he led the Financial Services Industry Advisory and Consulting practice providing Family Held Enterprises with strategic guidance, capital markets, and merger and acquisition transaction execution support. He also served as President of HEADWATERS l SC Group, LP and led Headwaters’ advisory services and support programs for clients of major financial services institutions.
Greg has also held various senior positions including President and Chief Executive Officer of HSBC Brokerage (USA), Inc., Head of North America Wealth Management, and Director of HSBC Securities (Canada), Inc. – Merrill Lynch-HSBC (Canada), Inc. During his tenure, Greg served on the Board of HSBC Asset Management (Americas), Inc. and as the Managing Director, Line of Business Corporate Strategy for HSBC North America Holdings, Inc.
Prior to his tenure at HSBC, Greg served as the President of Park Avenue Securities, LLC, a broker/dealer wholly owned by Guardian Life Insurance Company and as Chief Operating Officer of NYLIFE Securities, Inc., a wholly owned subsidiary of New York Life Insurance Company. In addition, Greg held various positions of increasing responsibility with the Dreyfus Corporation, a subsidiary of Mellon Bank Corporation.
Greg is a past member of the Board of Directors of American Bankers Association of Securities Dealers (ABASA), a BS in Marketing from Arizona State University, a MBA in Finance from Long Island University, C. W. Post, and is Six Sigma Green Belt Certified.