2018 was a roller coaster ride for asset prices as market volatility not seen in 2017 burst onto the scene. The Federal Reserve tightened monetary policy, and U.S. economic fundamentals were strong.
Fast forward to 2019, and while the Fed said it would be “patient” for now, there are already indications that economic growth and inflation will pick up over the next couple of quarters.
So, what is an investor to do? Here are my four keys for investing success in 2019:
Be prepared for more volatility
After a long period of market calm, volatility came roaring back in 2018. While global stocks rebounded in the first quarter, the ride was a rough one, and volatility continues to be a continued risk. Looking forward, Brexit, trade wars, China's economy, and global growth are just a few of the risks that could continue to exacerbate volatility for the rest of 2019.
Although many investors become nervous during periods of market volatility, it is important to remember that it is part of how markets function. One of the best things you can do during times of market extremes is to keep your emotions in check and don’t make any rash decisions.
Which leads me to point #2…
Instead of making rash decisions based on emotions when the markets are churning, make sure you have a well-diversified portfolio that can weather the market ups and downs. If you read my blogs, you’ve probably heard me say that before, but it’s so important, especially this year.
When risk is properly mitigated through diversification, the potential volatility of your investment portfolio potential is reduced. While diversification can’t eliminate risk, it can enable you as an investor to earn better risk-adjusted returns.
In today’s market environment, the barriers that have typically impeded access to advanced diversification strategies have been lowered greatly due to the creation of new investment options (alternative investments), and the technology that powers them.
Alternative investments can be a good way to diversify without sacrificing returns. The alternative investments I’m referring to here are something other than traditional stocks and bonds. Real estate, precious metals (like gold), private equity, hedge funds, and managed futures are some alternative investments considered by high net worth investors.
The more advanced your diversification strategy is, the stronger your investment portfolio will likely be, so talk to your financial advisor to determine your optimal investment strategy.
Maintain a long-term perspective
One key principle to remember is that time in the market is more important than timing the market. Indeed, investors who exited stocks during the downturn at the end of 2018 would have forfeited returns when the market quickly rebounded in early 2019. It’s virtually impossible to time inflection points in the market, so staying invested through periods of volatility is essential for your success.
Billionaire investor Warren Buffett, for example, takes a long-term view when investing in new companies; he looks for those that he believes will still be competitive 10 or 20 years down the road.
At the same time, it’s a good idea to review and revise your risk tolerance for your portfolio at regular intervals. Investing can’t do everything for you, but you have the control to make your money work for you.
Balance your portfolio with bonds
High-quality bonds have shown resilience in the past when the stock market seems to be unsettled and experiencing some volatility. With the expected continuation of market volatility this year, it is important for most people to balance their portfolio with some core bond holdings.
In addition, can play an important role in portfolio diversification and provide income, capital preservation, and inflation protection. Core bond funds are not all the same, though, so it’s important to work with your advisor to find the ones that would be appropriate for your portfolio, as some might not offer the diversification that you might expect.
As always, please feel free to contact me if you have questions or would like to discuss any of these concepts further!