How to keep calm and carry on in a volatile market

Market fluctuations are normal and to be expected. But, when volatility strikes—as a result of political developments, economic downturns, war, health crises, or natural disasters—it can be tempting to react, make educated guesses on what to do, or fear that you are missing out on an opportunity.

When anxiety is high, that’s the time to keep things in perspective by focusing on your long-term plan and goals. In our opinion, the best response may be to do nothing, especially if you already have a sound, long-term plan for pursuing your financial goals.

To help you take volatility in stride, remember

We’ve been here before; volatility is nothing new.
From the Arab oil embargo and Y2K, to Hurricane Katrina and Brexit, below are the global events that impacted the market over the past three decades. The chart underscores that, historically, markets reward discipline.

Source: Morningstar Direct, data as of 12/31/2019. International large companies represented by the MSCI EAFE NR Index, U.S. large companies represented by the S&P 500 TR Index.

Market declines create opportunity for long-term investors.
As the global market drop of 2018 illustrates, staying the course can pay off, while abandoning it can be costly.

Diversification helps your portfolio weather market turbulence.
The goal of a diversified portfolio is to participate in the best performing asset classes each year. History has proven that it is nearly impossible to accurately predict which asset class will outperform in any given day, month, year, cycle, etc. The chart below shows how a diversified portfolio, made up of stocks and bonds, fares against individualized stocks and depending on their allocation how fast investors recovered after the 2008-2009 crisis.

Focus on the right time horizon
Research on investor psychology has shown that as market volatility increases, your time horizon tends to shorten. Combining easy access to information on the daily swings in markets/your portfolio and no shortage of alarming headlines is a recipe for bad investment decisions.

The key is to focus on the right time horizon. If you have 20 years before retirement, the daily/weekly fluctuations mean very little to your long term results. Don’t let short term phenomena drive long term decision making. In other words, maintain a long term mindset.

The chart below provides a great data driven illustration confirming how a focus on the long term may produce a positive outcome. Returns over the short term vary widely and are relatively unpredictable, but over the long-term, the range of potential outcomes is much narrower. It’s also more likely your returns will be positive.

Source: The Measure of a Plan, March 25, 2018 https://themeasureofaplan.com/us-stock-market-returns-1870s-to-present/ 

While nothing is certain, market volatility is inevitable

Try to remain calm. Stay focused on your financial goals, and build a long-term plan with one of our expert advisors to help alleviate worry, preserve your wealth, and position yourself to take advantage of the next bull market.

Our approach

Focus on what you can control

Your SVB Private Advisor will work with you to:

  • Create an investment plan – informed by financial science and tailored to your needs, goals, and tolerance for risk.
  • Structure a portfolio along the dimensions of expected returns, within your risk tolerance parameters.
  • Manage the impact of taxes.
  • Add investment value, manage expenses, and monitor turnover, while maintaining broad diversification.
  • Stay disciplined through market dips and swings.

We understand you can never have enough time and that your life may be complex. Our partnership – built on transparency and communication -- is grounded in our commitment to providing exceptional service. We provide a uniquely customized experience through execution of a plan developed with technical wealth planning expertise that fully integrates every part of your life.

Your dedicated advisor combines technical expertise, professional experience, and judgment to be your single point of contact, consulting on all your personal financial decisions. This advisor is backed by a team of technical experts who can provide deeper knowledge and advice on specialized financial matters that might arise.

SVB PRIVATE is a leading provider of integrated wealth management, trust and private banking services to individuals, families, businesses and nonprofits. Over the last 30 years, SVB Private has provided clients with conflict-free, comprehensive advice and deep technical expertise that spans every aspect of their lives to simplify their path to financial success. The firm provides the capabilities of larger institutions yet delivers the superior service of a boutique firm to clients across the United States.

Emmett Maguire - Former Managing Director and Head of Multi-Asset Research

Important Disclosures

Opinions and data are as of the date of this article and are subject to change.

Investing involves risk, including the possible loss of principal. Past Performance is no guarantee of future results.

This material has been prepared for informational purposes only and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. This material should not be construed as research or investment advice and is subject to change at any time. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change. The information in this article has been compiled from sources believed to be reliable; however, SVB makes no representation or warranty as to its completeness or accuracy. 

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results. 

Any investment strategies or ideas discussed in this material are for information purposes only. There is no guarantee that any investment strategy will achieve its objective, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. SVB recommends that investors independently evaluate specific investments and strategies and encourages investors to consult with their own financial and/or other professional advisors before making any financial decisions. 

Investment products mentioned herein, including stocks, bonds, and mutual funds may lose value and carry investment risks. Asset allocation, diversification and rebalancing do not guarantee a profit or protect against a loss in declining markets.

The Chief Investment Office (CIO) provides thought leadership on market commentary, wealth management, investment strategy, and portfolio management. The CIO Notes and market commentary are developed for SVB Private. 

The materials on this website are for informational purposes only, are subject to change and do not take into account your particular investment objective, financial situation or need. Since each client’s situation is unique, you should consult your financial advisor and/or tax planning professional before acting on any information provided herein.