Navigating volatility: Holding for better opportunities

Over the past several months, investors have been watching the impact of Russia’s invasion of Ukraine play out in their own portfolios. Surges of volatility across the world’s financial markets have led to soaring oil prices, declining stocks and an increase in the level of concern surrounding inflation.

As of the second week of March, Morningstar’s U.S. market index dropped 11% and its European index fell about 14%, hitting their lowest levels since March of 2021. If you are currently in or getting closer to retirement and are feeling this drop in your own portfolio, know that you are far from alone. However, selling now to avoid further losses may only serve to limit your potential gains in the future.

Read on to learn how to navigate today’s market amid rising geopolitical tensions — and why the best strategy may be to wait it out.

With volatility comes opportunity

Looking toward the weeks ahead, the conflict between Russia and Ukraine will only continue to send shock waves through international markets. For many, this has prompted conversations surrounding what to do next and whether holding or selling investments makes the most sense.

Many financial professionals may recommend staying the course during this time. But as CNBC writes, following that advice can be difficult on days such as Tuesday, March 8, when widespread stock decline caused both the Dow Jones Industrial Average and the S&P 500 to sink further into correction territory. The following day, those who held on were met with gains that helped both of those indexes break a four-day losing streak.

Historic patterns show that almost every significant downturn in the markets is followed by a period of large gains. If concerns about the short-term state of the market have led you to consider selling, you may miss an upswing. In fact, an analysis by J.P. Morgan showed that the market’s 10 best days in the last 20 years closely followed significant declines — namely those that occurred during the 2008 financial crisis and in the wake of the 2020 Covid-19 shutdowns.

With this in mind, if an investor had closed their positions soon after experiencing a short term loss, it may not have been possible for them to reinvest in time to benefit from the profitable day that followed shortly afterward.

What to consider in place of selling

While it may be tempting to sell off in the face of major market volatility, loss aversion-induced selling can significantly erode your returns over time. That being said, there are several healthy investing habits that may help you maintain growth and feel confident — even in the face of short-term losses.

Maintain a cash buffer

Opting out of selling during the market’s current downswing can also help retirement savers reach their goals in other ways.

Contributing automatically to your 401(k) or Roth IRA through your employer may help give you the discipline to continue investing, even when markets go through volatile periods. In addition, opting to invest enough to get a full employer match — something that many refer to as “free money” because it’s paid for by your employer and not you — can help increase your investment growth.

Review and rebalance

During periods of market volatility, it’s essential to reassess your overall situation and whether your portfolio is working for you. Take a step back and ask yourself if your current asset allocation positions you well for the long-term and if your holdings are performing in a way that is consistent with your expectations.

For retirement savers, several 401(k) plans offer automatic rebalancing features, which can help make sure your portfolio does not become misaligned. If you are looking to pursue a more personalized approach or are managing complex assets, a financial advisor can help you to create a strategy that is tailored to your long-term needs.

Tax-saving opportunities

During this time, investors may also want to consider a Roth conversion, which involves transferring assets from a traditional IRA or another tax-deferred retirement account into a post-tax Roth IRA.

By completing a Roth conversion, investors can also free up cash to deploy in that account in the near future. If market volatility continues, that could present an opportunity to deploy the cash at lower valuations.

For non-retirement portfolios, the current state of the market also presents an opportunity to utilize tax-loss harvesting strategies that may not have been available to you at the end of 2021 when stocks were performing better. This can help lower the taxes you must pay on investment gains or other forms of taxable income. It is especially important to note that investors who leverage this strategy should resist purchasing the same or similar securities within 30 days of the sale in order to align with IRS regulations and avoid triggering potential penalties.

Creating the right strategy for your goals

No matter your current financial positioning or long-term objectives, holding during the market’s current downswing may pay off based on historical data. However, it is equally important to consider your unique needs and what tactics you can use to minimize losses and potentially generate higher returns in the future.

To better understand which aligns most closely with your financial goals, you may want to partner with a financial advisor to verify the specific strategy that will work best for you and ensure it is executed properly.

If you are interested in pursuing any of these strategies, or have any questions about the current state of the market, our team of financial experts stands ready to assist you. Reach out today to schedule a free, no-obligation consultation with one of our advisors.


The information contained herein represents the views of Elevage Partners at a specific point in time and is based on information believed to be reliable. No representation or warranty is made concerning the accuracy of any data complied herein In addition, there can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Any statement non-factual in nature constitutes only current opinion which is subject to change. These materials are provided for informational purposes only and do not constitute investment advice. Any reference to a security listed herein does not constitute a recommendation to buy, sell, or hold such security. Past performance is no guarantee of future results. The historical returns of any securities and/or sectors mentioned in this commentary are not necessarily indicative of their future performance.

References:
Konish, L. (2022, February 23). These are the smart moves advisors are telling clients to consider now. CNBC. Retrieved March 11, 2022, from https://www.cnbc.com/2022/02/23/advisors-urge-investors-to-take-proactive-approach-in-volatile-markets.html
Konish, L. (2022, March 9). Why you may miss the market’s best days if you sell amid high volatility. CNBC. Retrieved March 11, 2022, from https://www.cnbc.com/2022/03/09/you-may-miss-the-markets-best-days-if-you-sell-amid-high-volatility.html
Roy, K. (2020, May 6). Impact of being out of the market. J.P. Morgan Asset Management. Retrieved March 11, 2022, from https://am.jpmorgan.com/br/en/asset-management/adv/insights/impact-of-being-out-of-the-market/
Solberg, L., & Hossain, J. (2022, March 9). 6 charts on the market’s reaction to Russia-Ukraine war. Morningstar, Inc. Retrieved March 11, 2022, from https://www.morningstar.com/articles/1083495/6-charts-on-the-markets-reaction-to-russia-ukraine-war

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