One observer, "Jack Ablin, founding partner and chief investment officer at Cresset Wealth Advisors, said volatility typically arose for three reasons: a technical correction where stocks pause but continue rising because company fundamentals are sound; a correction that reflects a change in the business cycle; or a systemic correction, like the 1929 stock market crash or 2008 financial crisis." This is a comprehensive but not very helpful assessment for individual investors.
The following five suggestions may be more helpful advice to help investors weather stock market fluctuations:
- Pick individual winners (if you can): Active investment managers with good track records might be able to help.
- Consider bonds carefully: Bonds are usually a more conservative investment vehicle, having produced low returns in periods of low interest and low inflation. But risks exist now. Adam Taback of Wells Fargo notes that: "An alternative to bonds for affluent investors is private debt, which provides loans to small and medium-size companies. The loans are generally just a few years in duration and pay an annual yield of about 10 percent. The risk is in the credit quality of the borrower...Private debt does not feel the same impact that bond portfolios do when interest rates rise."
- Find alternative strategies: Although hedge funds have a bad reputation left over from the 2008 recession, some advisors now suggest that, "in a volatile investing environment, investors should reconsider hedge funds and other alternative assets like private equity, private debt and real estate." Because they are not tied into stock market fluctuations, they may seem more steady.
- Go Global: Since the recovery from the 2008 recession, which began in 2009 in the United States, has been later to arrive in Europe, Japan, and emerging markets--investments in those countries may be better bets now in balancing out a successful portfolio.
- Enjoy the ride: This may be the best advice of all. Since volatility may continue, and the market tends to out-perform other investments in the long run and over the long haul, just hanging tight is often the best strategy.