When Life Gives you Market Volatility….

Frank Venable | Photo by Ethan Smith

Managing Your Investments in Uncertain Times

Overall, 2022 has been a tough year for global investors. Stocks have been particularly volatile, with big price swings attributable to the potential for additional interest rate hikes by the US central bank and relatively high inflation. 

The U.S. economy has been sluggish, with a tight labor market, declining profit margins, and a flatter yield curve. According to World Bank data, U.S. inflation rates rose from 1.23 percent in 2020 to 8.2 percent by September 2022, then receded to 7.7 percent by October 2022. High inflation rendered real-wage growth negative and hurt consumer confidence. The Fed interest rate hikes aimed at adjusting for inflation increased the cost of borrowing.

Of course, the natural reaction when the market takes a dive is concern—even fear—and a desire to react. However, market volatility is a fact of life, and the anticipated recession risk remains moderate, predicts Fidelity Investments.

Historically, the U.S. stock market recovered from market dips over a long enough period and the S&P 500 shows a long-term uptrend. So, how do you best deal with market volatility?

Keep calm and invest on

Most experts agree that even for those who monitor the markets constantly, the market remains unpredictable, always going through cycle. However, that uncertainty is often worse than bad news. 

“When you have bad news, you know what to do about it,” says financial advisor Frank Venable of Morgan Stanley, adding later, “but in times of uncertainty, everybody predicts or expects the worst usually, and that’s why markets usually overreact. I think that’s what we’re going through right now.”

Thinking long-term and taking the emotion out of the equation could help, ensuring you keep your goals and tolerance to risk top of mind. 

Roger Kiger | Photo by Ethan Smith

“The first thing we tell our clients is not to be emotional about their financial decisions,” said Roger Kiger of Visionary Horizons Wealth Management. “Everything that we are going through right now is short-term. Never make long-term decisions based on today’s circumstances. If you make emotional decisions instead of logical ones, it’s going to cost you a lot of money.”

Brad Bower of Patriot Investment Management echoed the sentiment: “The biggest thing to remember during a market downturn is to not panic. Before you make any decisions regarding your finances, it makes sense to think about any long-term ramifications.”

Keep Your Financial Plan Close

Helpful during times of uncertainty is no doubt having a solid financial plan in place. And it’s never too late to reach out to a professional to start one. “Regardless of the state of the economy, you should have a financial plan—and stick to it. Once you have a good plan in place, the market fluctuations won’t matter that much in the long run,” emphasized Kiger.

“We work with our clients to develop a personalized financial plan to handle the ups and downs of the market, and from there we can allocate investments based on a client’s goals and risks tolerance,” added Bower.

Note that the definition of risk is different for everyone and there is no one-size-fits-all plan. Seeking out a professional to ensure you are making the right investments for your unique life is pertinent, so is recognizing that when you jump to sell, there’s someone on the other side ready to buy. 

“Remember, the most important thing to understand is to be consistent and don’t panic during times of uncertainty,” Venable says. “it can often be a time of opportunity.”

Investment Options

Part of staying abreast of your financial plan is understanding some of the options at your fingertips. First of note is in regard to your IRA. “If you convert a regular IRA to a Roth IRA right now when the balance is less, it’s that much less to pay in taxes to convert it to a Roth,” pointed Kiger.

“For retirees, the Roth conversions now could be an advantage because at age 72 they must begin taking an annual required minimum distribution, and they don’t know what the tax rate will be then. Now is a good time to take money from retirement accounts and put it into a tax-free account at low tax rates,” Kiger added.

A Roth IRA conversion can be a powerful tool for retirement. If taxes are expected to rise after you begin withdrawing from your traditional IRA, then a Roth IRA conversion has the potential to save you money in taxes in the long run. However, it’s important to consider possible drawbacks, which could be a big tax bill that’s challenging to calculate if you have other retirement accounts that are funded by pretax dollars, wrote Jean Folger in “Pros and Cons of a Roth IRA Conversion” for investopedia.com. Therefore, weighing the tax benefits of doing a conversion might be important. Again, it’s best to consult with a tax advisor about your specific situation.

There is also an option called tax-loss harvesting that you can use, which means to sell an investment that’s under-performing and losing money then use that loss to reduce your future taxable capital gains. “We’ve done that for a lot of folks,” Kiger says, “especially for those who are in the higher tax brackets.”

Generally, real assets—such as real estate, infrastructure, and commodities—prove to be good investments to hedge against inflation, outperforming bonds and equities, according to FS Investments. The price of commodities—which include raw materials and agricultural products like oil, gold, and grains—tend to rise alongside the prices of finished products made from them during inflationary environments, wrote Trevir I. Nath in “The Correlation of Commodities to Inflation” for investopedia.com

Brad Bower | Photo by Ethan Smith

Invest into Certain Stocks

When choosing stocks, finding assets with returns that outpace the rate of inflation can be a great place to start. In a down economy, long-term investors might choose to buy stock in companies of interest that were previously inaccessible. If you see your stocks devalue but believe in the viability of the company/industry, you may eventually see the stock value increase again, and maybe even surpass its historical high.

When investing in a company, consider its profitability. Kiger pointed out that “it needs to be at least cash flow neutral; otherwise, they are still reliant on investors to stay in operation. If the company is not publicly traded, then I would probably wait because there are too many unknowns, and you would need to be prepared to invest a lot of money.”

Dividend-paying stocks tend to be in value sectors, such as financials, energy, and utilities, which have outpaced growth sectors, such as tech, wrote Lawrence C. Strauss for Fidelity.com. “If you want safety, the dividend-paying stocks are good place to go,” Kiger says.

“For those just starting out,” Bower specified, “an index fund that tracks the overall US stock market would be a great place to invest. Younger investors have a 30 to 40-year time horizon and they should focus on that rather than on today.” He also pointed out that “for younger investors, now is a great time to put cash to work in the market and to evaluate your personal savings rate. We encourage our clients to work towards a savings rate of 12-15 percent of income.”  

And what if you are not a person versed in and ready to buy stock? “If you’re not a stock person, you can buy a 10-year bond that pays between 5-6 percent interest,” Kiger says. “We haven’t been able to buy bonds paying that much interest at low rates in the last 15 years, so there’s another good opportunity.”

There’s one other thing to consider—TIPS, or Treasury Inflation Protected Securities. Their whole purpose is to protect you against inflation. According to the U.S. Department of Treasury, the principal of a TIPS can change over time, unlike other Treasury securities, where the principal is fixed. TIPS pay a fixed rate of interest every six months until they mature. Then upon maturity, if the principal is higher than the original amount, you get the increased amount. If the principal is equal to or lower than the original amount, you get the original amount.

“In my opinion, the prices on TIPS have already gone up,” Kiger says. “We bought TIPS in the last couple of years but stopped buying them in the first quarter of 2022.”

Parting Words

Multiple experts we spoke with noted that in their many years as financial advisors, they have seen several market cycles like the one we see today. In a good market, most anybody can manage their own money; however, in a bad or uncertain market, there are few who know how to best proceed

“Lately, we’ve had a lot of request to discuss portfolios for people who have been self-managing for the last 15 years. Some of our younger clients haven’t seen a market like this. Others who have been through a recession figured out that they didn’t want to do this themselves,” says Kiger, whose firm lately has been hosting workshops to keep both clients and public informed on how changes in the national market may impact people locally. 

“This has been our busiest time to help people stay on course and help them not make rash decisions based on short-term circumstances,” he says. “I tell people that right now it’s more important not to make a mistake. That’s where a trained financial advisor can really help.” 

Of course, you should always keep yourself informed, even if you’re working with a financial advisor. Be sure to look at several different sources of information, even branching beyond the US economy to provide context for the market we are in locally. 

If you have a 401K, there is usually information on the provider’s website. Keep an eye on local investment companies’ websites as well for pertinent advice and workshops available to the public.


This content is for research and information purposes only and does not constitute legally binding advice or recommendations. The author is not a financial advisor and does not endorse any product or service that is referenced or linked in the matter. This article is not a replacement for a financial advisor’s advice.

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