It’s mid-2021. Just as we’ve finally landed on quiet shores, completely exhausted by the pandemic, we are being dragged back out to sea to navigate one of the most complex financial markets in recent memory… maybe in our history.
The markets have been hit by a series of complex influences; inflation, highly speculative trading, political division, and fluctuating interest rates. And, while it’s normal to encounter one, maybe two, of these headwinds at any given time, at this moment we are experiencing them all simultaneously. The question that’s on everyone’s mind: how will these impact the current equity market’s historic rise? The most likely result… volatility!
Volatility is part of the noise that could come while you are allowing your investments to compound long into the future.
Volatility vs. Risk
Volatility, all by itself, is not worrisome. It’s part of a very normal market experience — a measurement of the ups and downs in the price of a potential investment vehicle over a certain period of time. The more dramatically a price moves, the higher the volatility. Seems simple enough until the aforementioned risk factors get added into the mix. Inflation, speculation, political division, and changing interest rates have turned our normal volatility into a more uncertain environment for investing.
So, while volatility and risk may sound like two heads of the same snake, they are actually completely different animals.
Why these influences are risky
I’m often asked about these individual influences and why they cause such painful volatility in the markets. Here are a few examples of volatility intertwined with risk.
- Inflation is risky because when consumer prices rise they make the dollar less valuable and it won’t buy as much of what you need.
- Speculation is risky because when investors buy or sell without regard to industry fundamentals, the markets become less predictable.
- Political division is very risky to the markets especially when Congress is gridlocked over budgeting and tax issues which in turn create uncertainty in the corporate board rooms. If corporations can’t plan ahead with some certainty, it may impact future earnings, which in turn impacts stock prices.
- Interest rates are controlled by the Fed and markets tend to react strongly to sudden and unexpected changes in federal monetary policy. When the markets get surprised or disappointed, expect extremes.
Where we shine! (and where we don’t)
At Unified, environments where we expect to do well for our clients would be rational markets and market decline. A rational market means that it is following fundamentals and proven principles that drive markets like interest rates and Federal Reserve decisions. Market declines also help us do well because they offer opportunities to re-balance, reposition, and employ tax management strategies to our client’s portfolios.
Environments where we would expect to underperform would be excessive growth & momentum, risk-on, speculative markets.
We guide our clients to weather the storm of volatility. We position ourselves and our clients for the long-term, with a focus on building assets and steady growth because historically, this method has shown to be a prudent way to help build wealth over time.
We also take a proactive approach to planning. Being proactive gives you options and helps prepare you for the unknown by exploring a number of “what if” scenarios. This type of approach helps provide some certainty in your spending decisions. You want a plan with a disciplined strategy that looks at all the key areas and a team that can bring it all together. Clarity can help relieve the anxiety of such a complex time and help you to make better decisions with confidence.
Our steady, less chaotic roadmap may not be as heart-pounding as some of the others, but our approach helps lead to more stability, more clarity, and more confidence in your future.
Come home to Unified.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Investing involves risk including loss of principal.