Alter your strategy in an uncertain market.
The stock market’s been on a roller-coaster ride. With the S&P 500 index’s fluctuations in early 2019, investors need a strong stomach. It’s likely that the stock market’s ups and downs will continue for the rest of the year. For investors seeking strategies for a rocky market, financial professionals offer their input on conservative and riskier investment strategies. Here are seven investing approaches in an uncertain market.
Avoid emotional decision-making.
Chance Butler, founder and CEO of InvestingUnder35 in Queen Creek, Arizona, offers an easy-to-implement strategy for ways to invest money, “When a person is afraid, they tend to make irrational decisions. If you’re afraid right now, simply close the browser that is displaying your investments and check back in June,” he says. Butler explains that investing is giving money a job. By choosing good companies to invest in, investors can expect their money to work for them. “You wouldn’t quit your job if a recession came, so don’t sell your stocks when the market drops,” Butler says.
Invest in tangible assets.
Chris Rawley, founder and CEO of Dallas-based Harvest Returns, an online platform for investing in agriculture, recommends investing in assets less correlated with stock and bond markets. He suggests real estate, agriculture and timberland as ways to protect retirement funds from choppy investment markets. An easy way to capture tangible asset classes is by investing in exchange-traded funds, such as iShares Global Timber & Forestry ETF (ticker: WOOD), which provides exposure to companies in the forest, agricultural, paper and packaging industries. For agriculture exposure, the Invesco DB Agriculture ETF (DBA) is the largest fund in this category. Vanguard Real Estate ETF (VNQ) covers the U.S. real estate market, as another example.
Buy a home.
Alexander Boriskin, a real estate agent at Douglas Elliman in New York, recommends homeownership as a path to investment success. “There are many reasons when buying a home can be a great investment, such as when the value of your property rises so much that when you go to sell the property you make a profit. You can also take a loan against the property and invest it into something that will in return bring you a profit while still being able to enjoy your home,” he says. With interest rates at historic lows, soft home prices and record-high employment levels, experts say it’s a good time to buy a home.
Play it safe.
“One of the biggest mistakes retirees make is that they don’t have any or enough ‘safe’ money investments. They get pitched by a broker, stock jock or variable annuity salesperson and all of their money ends up in the stock market,” says Wayne Maslyk, president of Ohio-based Great Lakes Benefits and Wealth Management. It’s surprising how aggressive many risk quizzes are, and even older investors are encouraged to invest about 70 percent or more in stock market assets. For that reason, Maslyk recommends retirees to allocate a portion of their investment dollars in safe accounts, such as certificates of deposit, fixed annuities and government bonds.
Don’t sell at market bottoms.
Behavioral psychology can play a number on investors. Although the annual return on investment in the S&P 500 stock market typically performed more than 9 percent on average over the last 90 years, most investors returns haven’t kept up. According to a study by Boston financial research firm Dalbar, investors underperformed the market by more than 5 percent annually on average between 1987 and 2017. Fear keeps investors from staying invested during periodic market declines. Yet setting up a responsible asset allocation and remaining invested through ups and downs leads to the best investment results. So investors are wise to resist the temptation to trade in and out of the market.
Consider alternative active investment strategies.
Low volatility funds, such as Invesco S&P 500 Low Volatility ETF (SPLV), include blue-chip stocks that might help investors to sleep better as the markets bounce around, says Jim Lee, founder of StratFI in Wilmington, Delaware. For the fixed portion of an investor’s portfolio, Lee recommends PIMCO Credit Opportunities Bond Fund (PCARX). This fund uses various investment strategies for maximum returns and capital preservation. He suggests the Glenmede Secured Options Fund (GTSOX), which includes exposure to call and put options, enabling investors to participate in market upswings while cushioning declines. The best investments for an uncertain market are those that investors can stick with long term. Patient investors tend to reap the greatest returns.
Investment strategies for market volatility.
To recap, here are seven investing strategies to consider during a rocky market:
— Avoid emotional decision-making.
— Invest in tangible assets.
— Buy a home.
— Play it safe.
— Try a covered-call strategy.
— Don’t sell at market bottoms.
— Consider alternative active investment strategies.
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