Stock Market Volatility: Time To Diversify
Stock Market Volatility: Time To Diversify
Stock market investors experienced the largest bull run in the history of the stock market from 2010 through 2017.
January 2018 brought more gains until early February, when we saw two separate 1000-point drops and another 500-point drop in the market. In March, there was a 700-point drop, which wiped out some of the recovery. The stock market had been back to about the same value that we saw around the beginning of this year until recently.
Are these losses a minor speedbump on the road to more gains or a warning of a market downturn on the horizon?
While we can’t predict the future, this can be a great reminder to not have all of your financial eggs in one basket. If you have the majority of your portfolio invested in the stock market, it can be nice when the markets are up but not so nice when the markets go down.
Diversifying your portfolio can potentially reduce your overall risk and provide less volatility during market downturns. Many commission brokers might recommend a mix of bonds and/or mutual funds. However, there are concerns about a “bond bubble” that could impact the markets. Mutual funds are a group of stocks which can often move in a similar downward direction to bonds; we saw this in 2008, when the vast majority of stocks were down.
Looking over the past 50 years, many smart investors have benefited from diversifying some of their money to different asset classes to soften the blow of potential stock market losses:
Savings and Certificates of Deposits (CDs) in the bank can offer some safety. With interest rates historically low, this could be a place for a small part of your portfolio. Savings can offer good liquidity, since you can easily withdraw money. A CD can offer a slightly higher rate of return but not the same liquidity.
Savings bonds are issued by the U.S. Department of the Treasury. Series EE bonds will pay a fixed rate of return. Series I bonds will pay an interest rate that is adjusted for inflation.
Annuities can offer a number of different options and potential benefits. Some can include riders for lifetime income to start immediately or in the future, while others can include some principal protection. Certain annuities offer a fixed rate of return, while others can be tied to different market indexes, which have nothing to do with stocks.
Life insurance can gain cash value. Whole life generally offers guarantees from the insurance company. Indexed universal life can offer higher potential growth.
Owning real estate or a REIT (real estate investment trust) is another way investors have diversified by having some of their money outside of the stock market. You might be the type of person who wants to actually own the physical land or building, or you might want to be part of a trust with a group of investors.
Gold, silver, and precious metals is another option that has been around for centuries. Some investors flee to these in times of extreme market uncertainty. We’ve all heard of the “gold standard.” Some have been predicting that silver could eventually see a big upswing in value. There are a number of other options in this category.
Cryptocurrencies, such as Bitcoin, LiteCoin, Etherium, and others, have recently been in the news a lot. These have been very volatile, and there are many questions about this newer type of currency. It’s certainly not a place I’ve advised clients to put their money for several reasons, but with all the media attention surrounding it, I felt it was important to at least mention. While some people feel cryptocurrency has good upside potential, I would caution anyone about it due to the associated uncertainty.
Art, automobiles, and wine have investment values that can rise over time, generally for knowledgeable investors in these areas. The benefit to this can be that, if your collectible doesn’t rise in value, you at least still have the tangible asset to enjoy.
This list is by no means exhaustive — there’s certainly no shortage of investment options outside of the stock market.
Prior to making any investment decisions, do your homework. Research the pros and cons, so you know the potential benefits along with any risks you could be taking on.
Most importantly, invest where you feel comfortable.
Working with an experienced financial professional at LAAM Partners Group can offer many benefits when looking for different investment options. You can gain from their years of experience and resources. The small amount of money you might spend in fees will likely pay for itself by the investment gains you could have.
Consider the years of experience in your own industry: You have the training and knowledge from years of work. The same can be true when working with a financial professional.
When the stock market is in an upswing, your goal is for your investments — both in and out of the market — to increase in value. Consequently, it’s just as important to protect your portfolio by investing outside of the market in the event of a downturn. It could help to reduce potential portfolio loss.
Spreading out your financial eggs, so they are not all in one basket or tied to a single asset class, can offer many benefits. The key is to diversify your investments prior to the next major stock market downturn.
This content was brought to you by Impact PartnersVoice. Investment Advisory Services offered through Retirement Wealth Advisors (RWA), a Registered Investment Advisor.
Riedmiller Wealth Management and RWA are not affiliated. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision. 458440-0319
Comments
Post a Comment