Considerations for Shifting Markets

Investment Strategy

Considerations for Shifting Markets

Review how to better prepare your portfolio for a downturn – and how to take advantage of one if it occurs.

February 5, 2018

Market volatility is an inevitable part of investing. And it’s understandable that tumultuous times will likely trigger emotional responses to match. But it’s important to remember to take a deep breath, pick up the phone and talk to a trusted advisor – one who has seen an unpredictable market or two and the subsequent recovery.

Diversification May Help Smooth the Ride

The best-performing asset class often changes from year to year, and as shown in the chart below, the difference between the best- and worst-performing in any year can be significant. Most times this is due to correlation – a statistical measure of how two securities move in relation to each other. If returns are negatively correlated, when one return declines, another return is likely rising. And while diversification does not assure a profit or protect against loss in declining markets, it provides the opportunity to reduce risk, temper volatility and enhance risk-adjusted returns.


  • Balanced portfolios may help reduce overall risk.
  • Diversification may smooth ups and downs to help ease stress.
  • Diversify by asset class and investment styles.
  • A broad portfolio offers the potential of better risk-adjusted returns.
  • Review your allocation regularly with your financial advisor.

Source: Morningstar.

In Market Declines, Opportunity May Arise

Just like life, the market has ups and downs. For example, the chart below highlights several S&P 500 index pullbacks of 5% or greater in recent years. While it illustrates that declines are fairly common, it also shows the gains that followed each time. But you have to participate, not withdraw, to benefit from those gains. The chart also reveals that investors who chose to pull their money out of equities during those periods may have missed some of the market’s biggest gains because some of the market’s best days came right after periods of steep decline. Also, remember that a decline can present opportunities to buy quality investments while they’re temporarily undervalued. This can enable you to invest in high-quality companies at lower prices and capture additional value.


  • Selling during downturns may lock in the loss.
  • Pullbacks and corrections can present buying opportunities.
  • Fundamentally sound investments may be discounted.

Source: Yahoo! Finance and Raymond James research.

When considering market volatility, topics you may want to discuss with your advisor include: 

  • The cause of the recent market volatility and how long might it last
  • The possible effect current market conditions may have on your overall financial plan and goals
  • The impact to your portfolio and if it should be adjusted
  • How to plan for the road ahead and take advantage of opportunities that may arise 



Past performance may not be indicative of future results. There is no assurance these trends will continue. The market value of securities fluctuates and you may incur a profit or a loss. Investing involves risk including the possible loss of capital.  This analysis does not include transaction costs which would reduce an investor’s return. The S&P 500 is an unmanaged index of 500 widely held stocks. An investment cannot be made directly in this index. Real estate securities are susceptible to the many risks associated with the direct ownership of real estate. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. Commodities are generally considered speculative because of the significant potential for investment loss. Fixed income investments may involve market risk if sold prior to maturity, credit risk and interest rate risk. Dollar cost averaging does not assure a profit and does not protect against loss. It involves continuous investment regardless of fluctuating price levels of such securities. Investors should consider their financial ability to continue purchases through periods of low price levels. Diversification and asset allocation do not ensure a profit or protect against a loss.

Asset Class Index Non-U.S. Equity: MSCI ACWI ex U.S. Net Return; U.S. Equity: Russell 3000 Total Return; Blended Portfolio: 45% U.S. Equity / 15% Non-U.S. Equity / 40%; Fixed Income; Cash & Cash Alternatives: Citi Treasury Bill 3 Month; Fixed Income: Barclays U.S. Aggregate Bond Total Return; Commodities: Bloomberg Commodity Total Return; Global Real Estate (prior to 2009): NASDAQ Global Real Estate Net Return; Global Real Estate (2009+): FTSE EPRA/NAREIT Global Net Return


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