By Emmett Maguire, CFA, Head of Multi-Asset Research, SVB Private
Market volatility is normal and expected. But when volatility hits — due to political developments, economic downturns, wars, health crises or natural disasters — you may easily react, making educated guesses about what to do, or worrying that you’ll miss out good opportunity.
When anxiety runs high, it’s time to stay in perspective by focusing on your long-term plans and goals. In our opinion, the best response may be to do nothing, especially if you have a sound long-term plan in place to achieve your financial goals.
To help you navigate volatility, remember: we’ve been here before.Volatility is nothing new
From the Arab oil embargo and the Millennium Bug, to Hurricane Katrina and Brexit, here are the global events that have shaped markets over the past three decades. The chart highlights that, historically, markets reward discipline.
Falling markets create opportunities for long-term investors
As the global market downturn in 2018 demonstrated, staying the course can pay off, and giving up on it can be costly.
Diversification helps your portfolio weather market volatility
The goal of a diversified portfolio is to participate in the best performing asset classes each year. History has proven that it is nearly impossible to accurately predict which asset class will outperform on any given day, month, year, cycle, etc. The chart below shows how a diversified portfolio of stocks and bonds relates to individual stocks and, depending on their allocation, how quickly investors recovered after the 2008-2009 crisis.
Focus on the right time frame
Research on investor psychology shows that as market volatility increases, your time horizon tends to shrink. Easy access to information on the daily volatility of the market/your portfolio and no shortage of shocking headlines that lead to poor investment decisions.
The key is to focus on the right time frame. If you have 20 years left to retire, daily/weekly fluctuations don’t mean much for your long-term results. Don’t let short-term phenomena drive long-term decisions. In other words, maintain a long-term mindset.
The chart below provides a great data-driven illustration of how a long-term focus can yield positive results. Short-term returns vary widely and are relatively unpredictable, but in the long-term the range of potential outcomes is much narrower. Your returns are also more likely to be positive.
While nothing is certain, market volatility is inevitable
Try to stay calm. Focus on your financial goals and develop a long-term plan with one of our expert advisors to help alleviate worries, protect your wealth and prepare yourself to take advantage of the next bull market.
Your SVB Private Wealth Advisor will work with you to:
Develop an investment plan – based on financial science, tailored to your needs, goals and risk tolerance. Build your portfolio along the dimensions of expected returns within your risk tolerance parameters. Manage the impact of taxation. Increase investment value, manage expenses and monitor turnover while maintaining broad diversification. Stay disciplined in market downturns and volatility.
Our partnership – built on transparency and communication – is based on our commitment to delivering exceptional service. We deliver a uniquely tailored experience by executing a program developed with technical wealth planning expertise that fully integrates every part of your life.
Your dedicated advisor combines technical expertise, professional experience and judgment to be your single point of contact for all your personal financial decisions. This advisor is supported by a team of experts who can provide in-depth knowledge and advice on professional financial issues that may arise.
The views expressed in the article are those of the author and/or respondents and do not necessarily reflect the views of SVB Private or other members of the Silicon Valley Bank Financial Group. This content is for informational purposes only, is subject to change and does not take into account your specific investment objectives, financial situation or needs. As each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided here.