Opportunities in Volatile Markets
Many investors stress over the frequent ups and downs of the markets. It causes many to wonder whether or not stocks will really help them achieve their long-term goals. In times like these, it’s important to remember:
- Historically, stocks have trended higher over longer periods of time.
- For example, in early October 1987, the S&P 500 Index was valued at 327. On October 19th – Black Monday – the Index lost 22% in a single day. By the end of October, it was trading at 247. Many investors were stressed and wondering if their investments would ever recover. By December 31, 2018, the S&P 500 was trading at 2,506. That’s over 900% higher than the October 1987 lows.
- In March 2000, the world experienced the dot.com bubble. On March 10, the NASDAQ closed at 5,049. Less than one month later, on April 5, the NASDAQ closed about 17% lower at 4,169. By March 2001, the Index had fallen to 1,840. Again, many investors wondered if their investments would ever recover. By December 31, 2018, the Nasdaq Composite was trading at 6,635. Nearly 260% higher than the March 2001 lows.
- In 2008, the markets were faced with the Financial Crisis. The Dow Jones Industrial Average began the year trading at 13,044. It ended the year trading 33% lower at 8,776. Once again, many investors wondered if their investments would ever recover. On December 31, 2018, the Dow was trading at 23,327. Nearly 220% higher than the Financial Crisis lows.
The U.S. stock markets experience periods of volatility with significant losses and significant gains. There are downturns and recovery periods. However, over the long-term, the markets have trended higher.
For investors who can tolerate volatility, these periods may pose an excellent opportunity to enhance returns over time by boosting stock exposure in a well-diversified portfolio. It’s important to remember, of course, that past performance does not guarantee future results.
- Market volatility may create opportunities.
When a portfolio loses value in uncertain markets, it’s natural to wonder whether you should sell. Sometimes, investors do so without considering how the decision will affect their long-term goals. While selling isn’t always a mistake – perhaps, your asset allocation is out of balance or you want to harvest tax losses – selling without a strategy may be erroneous.
Here are several tips that can help investors make the most of opportunities and avoid mistakes during volatile periods in the markets:
- Keep perspective.
As the examples above show, market downturns are normal. Historically, markets have recovered and delivered positive returns over the longer term.
- Stay the course.
Our natural instinct leads some investors to sell when markets drop. This strategy locks in losses. In past downturns, when investors have been patient, they’ve recovered lost value after markets calmed, and moved higher again.
- Buy low.
During periods of market volatility, investment managers may find opportunities in stocks at attractive values. By investing in these opportunities, investment advisors may position their clients for stronger long-term returns.
- Review your asset allocation.
Does your current allocation still match your target allocation? After periods of significant market movements, your portfolio may need to be rebalanced.
- Review your risk tolerance.
If you’re losing sleep over market volatility, it’s possible your risk tolerance is lower than you originally anticipated. In these situations, reducing overall portfolio risk may be a smart choice. Be sure to talk with your financial advisor before making any changes.
- Harvest tax losses.
Selling investments during market downturns can be an effective strategy. Talk with your financial advisor and tax professional about whether you could benefit from taking the losses for tax purposes.
- Consider a Roth conversion.
If you’ve been wondering about converting a Traditional IRA into a Roth IRA, completing the move during a market downturn could reduce the amount of taxes owed. Once converted, the funds may benefit greater from tax-free growth. Always discuss this strategy with your financial advisor and tax professional to understand the potential advantage and disadvantages.
Whether you’re investing for short-term or long-term goals, it’s important to recognize the opportunities created by market volatility. We recommend working with your financial advisor to make the most of them.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment. This information is not intended to be a substitute for specific individualized tax advice. We suggest you discuss your specific tax issues with a qualified tax advisor. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC (“Bogart”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Bogart. Please remember to contact Bogart, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Bogart is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Bogart’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.