- 1 minute
On Market Conditions
As we continue to live through the increased volatility in the financial markets, it’s a natural reaction to question how this may impact our own individual wealth. While FNA remains vigilant and continues to monitor market and global economic developments, we do not see a need for portfolio adjustments at this time. That being said, I wanted to highlight a few important points:
1. Volatility is part of equity investing
The reason we expect higher long-term returns on stocks than on cash and bonds is because they have greater volatility. There is no free lunch in the financial markets, and we have to accept volatility in times like this in order to earn the expected higher long-term returns. FNA takes a strategic, long-term view on asset allocation and your portfolio is invested based on your unique financial and personal circumstances.
2. Market timing does not work
If anyone could do it consistently, the rewards would be great, but investors typically end up with sub-par performance due to the extreme difficulty of getting the timing right. Despite much attention in the media to being tactical (i.e. market timing), we are not aware of investors – individual or institutional - who have consistently timed the markets with success. Although market timing isn’t possible, the good news is that one does not need a crystal ball to invest with success. The benefits of a long-term, strategic view are compelling, but the higher returns associated with investing in equities is dependent on being disciplined through both good and bad times.
3. The importance of diversification
One of the important lessons from the financial crisis is that diversification works. While this may not be the case on a day-to-day basis, a mix of different types of assets provides a smoother and more stable ride for a portfolio. As an example, while stocks have performed poorly in the past few weeks, most of our bond and alternative funds have provided positive returns. The time frame is extremely short, and no one knows how the funds will perform in the next few weeks or months, but it is another testament to the benefits of diversification.
It is important to stay calm and refrain from making emotional decisions that may be detrimental to your wealth. In the meantime, our dedicated team will monitor for rebalancing opportunities that may add value to portfolios.
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