In 2017, stock markets were notable not only for their solid performance but for unusually low volatility. Then came 2018. In February, markets suffered a steep correction, rebounded before long, and then continued to move up and down months after. If you’re retired or about to retire, market volatility is something you want to guard against. But if you’re in your wealth accumulation years, volatility has a silver lining.
Swings in the market may cause anxiety among some investors, but experts who manage money view volatility as an opportunity. During a downturn, investment managers have the chance to add to current positions at discounted prices. Managers can also invest in companies with solid fundamentals whose stock prices have moved from expensive to favourable. These moves – often called “buying the dip” – can boost a portfolio’s value over the longer term as markets recover and stock prices rebound.
When you’re nearing retirement or already retired, volatility isn’t about buying opportunities – it’s about protecting your investments. Generally, you begin making your portfolio more conservative about five to 10 years before retirement. That takes discipline if these years coincide with a bull run and you worry about missing higher returns. But safe beats sorry when an unexpected market crash could postpone your retirement.
During retirement, you can use a variety of products and strategies to minimize the effects of volatility. Life annuities, for example, provide guaranteed income. Some investors create a separate pool of low-risk fixed-income investments, largely insulated from market volatility, designed to provide income for the next few years. Growth-oriented investments required to meet longer-term goals can be invested in stable companies that have been less volatile historically.
Talk to us if you want to discuss how your portfolio is positioned to manage volatility and meet your financial objectives.