Let’s dive into market volatility and highlight the big 3 lines of defense Wealth Dimensions builds into your portfolio.
We have seen a fair amount of market volatility over the last few years from COVID spikes, US political pressures, inflation concerns, and geopolitical events. All of these events create uncertainty, and the market does not like uncertainty in the short term, responding with volatility. As this blog is being written, we are watching the market respond to Russian military actions in Ukraine.
Turbulent times weigh heavy on our clients and all investors. Studies on behavioral finance tell us that it is human nature to want to sell and stop the bleeding when we see the unrest on the news and watch our accounts go down. However, history has proven that selling is often the worst course of action. Trying to time getting in and out of the market is proven to be a fool’s errand and not sustainable for long-term growth.
If timing the market is not a reliable strategy, what is Wealth Dimensions doing?
We construct our portfolios to weather the storm during periods of volatility with asset preservation, maintaining buying power, and long-term growth as the ultimate goal.
There are 3 primary strategies we use to accomplish this…
The first line of defense is fixed income or the bond component of your portfolio:
It is easy to forget their importance during long periods of consistent growth in a Bull Market, but times of volatility, like we are currently experiencing, are the exact reason you have bonds in your portfolio. They reduce risk and soften the blow of large swings in the market.
The second line of defense we deploy is diversification in your stock portfolio:
Our investment committee analyzes and sets targets for the asset classes or baskets of stocks we hold and at what percentages. They target many different factors such as large and small US, growth and value, international, emerging markets and real estate. These varying factors and components allow for a smoother ride over the long run.
The third tool in our war chest is our rebalancing strategy:
During times of dislocation, different asset classes and categories respond differently. When stocks go down, the bond component provides dry powder to buy the depressed stocks. The same works on the stock side. We trim the stocks that have done well and redeploy them into the components that were hit. At its core, it is a systematic approach to the old adage of buy low, sell high.
We realize periods of volatility are nerve-wracking but not unusual. If you have any questions, please reach out to me or your advisor on the Wealth Dimensions’ team.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Past performance is not indicative of future results. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice.For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.