What Does the Volatility in the Market Mean?

As humans, investors are naturally inclined to follow tendencies dictated by psychology. We extrapolate recent events into the future, and we are scarred by prior traumas. Sometimes, the two go hand in hand. More specifically, we have gotten to expect that markets go straight up, as they have done since March 2009 – but the minute that we see any deviation from those expectations, we anticipate a market meltdown like 2008. The reality is, though, that the future doesn’t always follow such extreme examples. And indeed, “extreme” is a word that can be used to describe both the disaster of the financial crisis and the tremendous bull market that followed, both almost without parallel.

In reality, though, the market is more inclined to follow a pattern seen throughout much of history. And that is one with more volatility than we have seen in the past seven years, and one that might neither go straight up nor straight down. We must recognize the tradeoffs that dictate the fact that, with higher potential reward comes the necessity to undertake more potential risk. And risk often means losses from time to time, in a way that is neither extraordinary nor necessarily predictive of looming calamity.

Yes, there are problems in the world. However, we can instead offer a few questions for you to consider. And importantly, in order to help you answer these questions, your financial adviser has the tools you need to help you in your financial life journey.

What should you do? For our clients, a likely answer may be to simply make no changes at all, as their United Capital financial adviser may have already established the investment strategy most appropriate for them. It is important, or perhaps we might even say, imperative, that you recognize the instinct to “do something” ignores the most basic principal that we may be merely returning to an era of more “normal” volatility.

And more volatility is indeed normal. According to Ned Davis Research, stock market volatility over the last thirteen weeks through January 10this at the low end of the range of what is considered normal and typical. In fact, over the long span of time, the market experiences a decline of at least -10% once every 72 trading days on average. We haven’t experienced such a decline in a far longer period.

Might a Different Strategy Be Better for Me?
Consider discussing with your financial adviser. He or she can work with you, utilizing some of the industry’s innovative technologies to find where your portfolio should be positioned. If you do want a strategy that is designed to attempt to exit the market, or at least reduce risk exposure, during periods of substantial and sustained downturns, we do offer Tactical strategies. These are designed to help limit, but not avoid altogether, severe losses during a downturn. As we mentioned earlier, however, an increased focus on downside avoidance necessarily comes with decreased upside participation. As we at United Capital often say, “More of something often means less of something else.”

So have a conversation with your financial adviser. He or she is well equipped to help you handle market volatility. And above all else, a return to normal need not necessarily be feared.

Mr. Kelly Trevethan is a Certified Investment Management Analyst & Registered Financial Consultant. He is a Managing Director with United Capital Financial Advisers LLC, a national private wealth advisory firm with 79 offices across the nation. He can be reached at 415-418-2101. To obtain your free copy of the New York Times Bestselling book “The Money Code”, email him at Kelly.trevethan@unitedcp.com.

Disclosures
The information contained herein is intended for information only, is not a recommendation to buy or sell any securities, and should not be considered investment advice.  All data herein are obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. There are no investing strategies that guarantee a profit or protect against a loss. Tactical Asset allocation strategy is not for every investor due to its potential higher tax liabilities.

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