How To Protect Against Market Volatility

What's Up With The Volatility?

The big question on everyone's mind today is what's up with the volatility, will it get worse? Are we nearing a turning point...how much longer can it all continue? Here are my quick takes and some tips on what you can do protect yourself.

First, let's get the big question out of the way, the current volatility is likely to continue! This is due to several unresolved issues. The first is this ongoing tug of war between the Federal Reserve and Wall Street. Second, we have the recent developments in Silicon Valley Bank and Signature Bank, and the activity in the banking sector as a whole. This has helped to solidify the markets messaging, but the direction in which the market will ultimately move remains uncertain. While there may be a reduction in volatility, many experts still predicts a bumpy road ahead.

Unforeseen events such as bank failures or fallout from the crypto market could still have a significant impact on the market. In addition, there are many unknowns in the data, as highlighted in a recent Wall Street Journal article about the challenges faced by the Federal Reserve in collecting accurate data.

Due to the flawed nature of the data being used to make decisions about the economy, uncertainty about the future is likely to persist. This creates opportunities for savvy investors to make gains in a volatile market.

Volatility Likely to Continue for The Next 6-Months

At Yields for You, we believe that the current volatility will remain for at least the next six months. . However, even once the market quiets, we do not believe that the market will return to the historic bull market of the last 14 years. Instead, the market is likely to move sideways or experience a downward trend for an extended period of time.

Many analysts are predicting a modest return of only three to five percent over the next decade. This forecast has serious implications for those who have been relying on the market's historical average of nine percent return to fund their retirement.

While some sectors, such as defense spending, may outperform, a broad-based buy-and-hold strategy is unlikely to yield significant returns in the coming years. This presents an opportunity for investors to reevaluate their portfolio, rebalance, and take advantage of market volatility.

Beware of Buying The Dip

However, for retirees, simply buying the dip is not a viable option. Rather, it is essential to create an income plan that minimizes the risk of taking money out of the market at the wrong time. In addition, retirees must ensure that their investments are growing and will be available when needed.

Traditional strategies such as dollar cost averaging and buying the dip are unlikely to work in the current market environment. Retirees need to develop new skills and adopt new strategies that are specifically designed for retirement.

Furthermore, retirees must be mindful of inflation, which disproportionately affects them due to their unique expenses. Bank CDs and IBonds, while providing risk-free growth, may not keep pace with inflation and can result in retirees losing money.

In summary, the current market conditions call for a proactive approach to retirement planning. Retirees must adapt to the new reality of lower returns and higher inflation, and develop income plans and investment strategies that are specifically tailored to their needs.

How to Combat Inflation

Retirees must confront the unrelenting force of inflation, which shows no signs of capping any time soon. While individuals may exercise some control over inflation through their spending habits, it remains largely beyond their sphere of influence.

Rather than attempting to control inflation, retirees should focus on investing aggressively to beat it, without risking their financial security. This means devising an investment strategy suited to the current market conditions, rather than relying on a one-size-fits-all approach like buy and hold. It also means implementing a plan to mitigate losses and ensure that paper losses are not translated into real losses during retirement.

New Investment Options Available to Savvy Investors

Fortunately, the market now offers a range of investment strategies that were previously unavailable to individual investors.

One such strategy involves institutional-grade options that offer 100% principle protection, allowing investors to participate in market growth while safeguarding their assets against downside risk.

This new approach, which was once cost-prohibitive for individuals, is now accessible thanks to the economy's digitization and economies of scale. These options are fully liquid, with no commissions or surrender charges, and can be sold at any time. They provide a viable alternative to annuities and can help retirees preserve their assets against inflation.

In addition to adopting an investment strategy that capitalizes on market growth and devising a spending plan that ensures financial security during retirement, retirees must have an income plan that protects them against market volatility. Ensuring that they have a plan for taking money out of the market will help prevent locking in losses and allow them to maintain their financial security.

For more information on investment strategies and income plans, book a call with our team today!