“You win some; you lose some” is not something you want to hear when it comes to your finances. The way to build wealth in the long run is to embrace risk in the stock market sensibly. Saving money is not easy for anyone, so while it can be a mental shift to have some of those hard-earned dollars at risk, carrying out a smart investment plan has the potential to grow wealth greater than savings alone. Having a financial advisor who knows how to trade on volatility is essential to ensuring you have a winning strategy in place no matter the current economic climate.
So, how do you successfully trade on volatility? Investors can trade ETFs (exchange traded fund) or ETNs (exchange traded notes) that follow a volatility index like the Chicago Board Options Exchange (CBOE) (VIX). Experienced traders can leverage more difficult times to make smart investments that can pay off in the future. People closer to retirement should consider putting a portion of their portfolio in short-term investments to protect against possible losses if there are market downturns. When people do not have the luxury of time to recover their position, having some assets in short-term funds helps to protect against money lost that is needed sooner for retirement. For soon-to-be retirees, those short-term assets in more defensive investments can help steady those funds when markets turn down. The big difference in success during volatility is not reacting to fear but to embrace some risk during changing markets instead of taking unnecessary risks. Working with a financial advisor can help you determine what is the right course for your timeline and financial goals.
Specific investment types can yield significant results, especially during volatile times. Some specific higher-risk (with the possibility of higher-yield) investments are Corporate and High-Yield (Junk Bonds), Technology Stocks, and Emerging Market Investments (EMI). By diversifying over several different types of asset classes and markets, companies, industries, and regions of the world, you will help offset losses in one area by possible gains in another. It is valuable to consider the difference between volatility and risk when choosing investment strategies. A volatile market can experience intense and fast-moving price swings. Risk is the possibility of losing a portion or all of an investment. A financial advisor can help you make sure that you “win more” than you lose with various investment options.
If 2020 has taught us anything, it has demonstrated the link between public policy and our economic and physical health. We encourage our public leaders to avoid lockdowns like those experienced in most of the United States beginning in March and work to keep markets open regardless of current conditions. With markets running as close to normal as possible, the economy will be resilient to help fund public health recovery.
With a plan in place and a financial advisor helping you carry out that strategy, you will be well on your way to winning much more than you lose — no matter what 2020 or any other year may throw your direction.
· Embracing some risk is a tool that can help build wealth in the long term
· Have a financial advisor that follows and trades on a volatility index
· Put short term funds in defensive positions if needed for retirement
· Consider the strategies of investing in Junk Bonds, Technology Stocks, and/or Emerging Markets to build wealth during volatile times
· Keep markets open regardless of public health conditions
Justin Martin is a Senior Wealth Advisor for Legacy Wealth Management, with his office based in the Salt Lake City area. Justin works with small business owners and doctors throughout the United States and is passionate about helping individuals prepare for a robust financial future. Justin completed his Master of Business Administration (MBA) at Texas A&M University and completed his undergraduate studies at Brigham Young University. Justin is FINRA series 65 licensed, has been working as a Wealth Advisor since 2006, and is currently a board member with the International Association of Registered Financial Consultants. He also works as an adjunct professor of microeconomics and loves studying financial systems. Justin and his wife Megan have four kids and love all things active and musical.
This document is provided for educational purposes only. All investment strategies have the potential for profit or loss. No investment strategy can guarantee positive returns. The information contained in this document should neither be construed as a provision of personalized investment advice nor as a guarantee that a certain level of results will be achieved. Under no circumstances should this information be construed as an offer to sell or a solicitation of an offer to buy any particular service or product.