While the urge to act is natural, it’s almost never a good idea to make impulsive decisions about your portfolios.
There are, however, four things you can do when volatility strikes.
When market uncertainty occurs, it’s time to get back to the basics. In other words, trust in portfolio diversification and rely on traditional risk mitigation tools (e.g., Treasurys, gold, liquid alternatives) to play the role they were designed to play in your portfolio.
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
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.
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 times of uncertainty, focus on what you can control. And know that we are committed to helping you navigate the market when challenges arise.
1 Using returns on the S&P 500 Index dating back to 1950, the average subsequent returns twelve-months after the worst 20 single one-day returns is 25% per Bloomberg Finance, L.P., as of June 06, 2023.
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 June 10, 2023 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. Investing involves risk including the risk of loss of principal. Past performance is no guarantee of future results.
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