With stocks’ gyrations and economic uncertainty rattling investor confidence here and abroad, individual investors have not lacked for editorial advice on how to formulate an approach to counter market volatility. “You can’t time the market” might be a traditional Wall Street saying, but pundits try to do so, and they will continue to devise plans to minimize risks to their clients’ portfolios and leverage future opportunities. To that end, the commentary this month has been as varied as the peaks and valleys of the market’s performance. Here’s a synopsis:
Some commentators are describing the current situation as one of “slow economic growth,” which means the gross domestic product is expected to grow little more than 2.5 percent this year, not the 3.2 percent forecast earlier in the year. They note that it is not a surprise the economy has slowed following a stint of growth and a two-year market rally. Lower gas prices are a major plus and could spur consumer spending. Some look to the Federal Reserve to provide insight that could help calm jittery investors. On the down side, the stimulus program ended in June and some analysts believe the current market performance is a reaction to this. Other inhibiting factors are Congressional wrangling over the debt reduction deal, cuts in government spending that could result from the agreement and continued high unemployment.
Will we see more stock market volatility in the months ahead? No one can say for sure, but some investment pros think that the economy could slow further before we see a rebound. With this in mind, some advisers are sticking with a strategy that suits volatile times, including suggestions like these:
- Diversifying one’s portfolio among specific market categories – especially those that are less affected by cutbacks in consumer spending, such as companies that manufacture consumer staples, health care companies and telecommunications.
- Running the numbers on dividend-paying stocks to find companies whose price to earnings ratios look robust.
- Avoiding knee-jerk reactions to bad news, but considering revisions to your portfolio in order to have cash quickly available to leverage the upside of undervalued stocks. It is important to note that changes like this should only be undertaken as part of a carefully planned investment strategy and are not for individuals who are risk adverse.
- Few advisers are suggesting that their clients bail out of the markets. Those who have restructured their holdings and added alternative financial instruments have a range of options to consider, including money market accounts and bonds, or CDs and bank accounts, though these two pay much lower interest rates.
The comments outlined above are general observations and are not intended to be investment advice. For strategic planning and specific advice, please consult your professional investment and tax advisers.