HUNTINGTON — Recent stock market volatility has some investors concerned.
“I try to have a diverse portfolio,” said Raymond Sturgeon, of Putnam County, who says he has both short- and long-term investments. “I am not that worried about most of my long-term investments, except for maybe my 401(k) and some concern about other short-term investments.”
There were a few recent triple-digit drops to the Dow Jones Industrial Average as the stock markets have swung wildly in recent weeks on recession fears, the continued trade war with China and some indicators in the housing and manufacturing sectors.
A new survey last month showed some economists expecting a downturn to hit by 2021 at the latest, according to a report from the National Association of Business Economics.
In the report, 38 percent of economists surveyed said they believe a slowing economy will tip into recession in 2020. That’s down from 42 percent in a survey taken in February. Only 2 percent of those polled expect a recession to begin this year, while roughly a third of respondents foresee one hitting in 2021.
Edward Jones financial adviser Christopher Ball, who has a downtown Huntington office in the 900 block of 4th Avenue, says there is definitely a lot of market volatility right now.
“While it can be alarming for investors, we believe the outlook remains favorable for the immediate future,” Ball said. “Corporate evaluations are still favorable, consumer spending that is 70 percent of our gross domestic product is continuing to grow and monetary policies are favorable. Just recently, the federal government reduced short-term interest rates and we think that will continue to generate economic growth.”
Several recent leading economic indicators have been strong, like employment and consumer confidence, but even they have had their ups and downs. Ball says the longer you have a stronger economy, the law of averages points to a correction at some point.
“Historically speaking, there are typically 3 percent to 5 percent pullbacks per year; so far this year we have seen two,” he said. “From 2013 to 2018, market volatility has been very low compared to the historical average.”
However, given the recent wild swings of the stock market, it doesn’t appear they will end any time soon, according to Ball.
“We do believe market volatility could become the new norm,” he said. “That’s why it’s very important for investors to get a review of their investment portfolio.”
Ball says the worst mistake an investor can make right now is to panic and make moves based on news headlines and their emotions.
“Right now we are seeing a shift in stock prices,” Ball said. “This month we have seen more 1 percent shifts in both directions than we haven’t; however, we think the biggest thing is for those investors seeking to make a change in their long-term strategy based on current news.”
Market volatility can often lead investors to make moves based on their emotions, and those spur-of-the-moment decisions are often ones they later regret.
“The key is to make sure you have a portfolio that is diversified and braced for the volatility that every portfolio inevitably faces,” Ball said.
Ball says preserving gains from recent growth and following a strategy that can recover from any turbulence that may lie ahead depends on an investor’s goals and timetable. He said the appropriate mix of stocks and bonds in each investment portfolio depending on where the investor is at in their investment time horizon is vital.
“If you’re less than five years from retirement, you may not have a long period to recover from a dramatic drop in valuation,” Ball said. “On the other hand, if you’re young and have a long view, you may be able to factor somewhat more risk into your portfolio. You just never want to have too much in any one individual position, so it’s really a matter of sitting down with a financial adviser and making a solid plan for each individual.”