As the Russia-Ukraine War unfolds, the grave human toll is our top concern. We also recognize that investors have questions about the challenges this crisis presents. During periods of intense market volatility like we’re experiencing, it’s common to feel compelled to “do something…anything.”
While the urge to act is an all too human one, you may want to resist making impulsive decisions about your portfolios. Especially now.
There are, however, four things you can do when volatility strikes.
1. Trust in diversification.
Now is precisely the time to get back to basics. In other words, trust in portfolio diversification and rely on traditional risk mitigation tools (e.g., Treasuries, gold, liquid alternatives) to play the role they were designed to play in your portfolio.
2. Stay focused on the long term.
History has shown that time in the market—not timing the market—tends to lead to more successful outcomes over the long term. This is especially true during volatile periods that see large, outsized movements in either direction. Time is a great leveler, and swift and sizeable recoveries have historically followed steep declines.1
3. Ensure adequate liquidity.
Review the liquidity profile of your portfolio, as well as the liquidity of individual funds within it. Be sure you have sufficient liquidity should you need to trade, as the cost to do so could be high. Our SPDR Sales Execution and Implementation teams are here to help.
4. If you must trade, do it efficiently.
If you have to trade, don’t trade using market orders or within the first 30 or last 30 minutes of the trading day, when volatility tends to be highest and spreads at their widest.
In today’s uncertain environment, focus on what you can control. Know that we are watching events and markets closely and remain committed to helping you navigate the challenges this crisis presents.
1Using returns on the S&P 500 Index dating back to 1950, the average subsequent returns six-months after the worst 20 single one-day returns is 27% per Bloomberg Finance, L.P., as of March 3, 2022
A strategy of combining a broad mix of investments and asset class to potentially limit risk, although diversification does not guarantee protecting against a loss in falling markets.
The ability to quickly buy or sell an investment in the market without impacting its price. Trading volume is a primary determinant of liquidity.
The tendency of a market index or security to jump around in price. Volatility is typically expressed as the annualized standard deviation of returns. In modern portfolio theory, securities with higher volatility are generally seen as riskier due to higher potential losses.
The views expressed in this material are the views of Matthew Bartolini through March 3, 2022 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Past performance is not a reliable indicator of future performance.
Diversification does not ensure a profit or guarantee against loss.
Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable.
Volatility may result in periods of loss and under-performance may limit the Fund's ability to participate in rising markets and may increase transaction costs.
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