How to Strengthen Your Investment Portfolio in a Volatile Market

2018 was a roller coaster for the stock market. If you’re an investor, you were probably impacted more than once – for better or worse. The Dow Jones Industrial Average (DJIA), Nasdaq Composite, and S&P 500 each hit new all-time highs as the stock market soared. The S&P 500 experienced its biggest rally since 2015 and the DJIA saw the biggest single-day gain of more than 1,000 points. But the year also brought several falls. In addition to its largest gain, the DJIA also experienced its largest-ever fall in February; and in December alone, it experienced six 350-point drops. Ultimately, the year ended in negative territory for each index: the DJIA finished at -5.6%, the Nasdaq -3.9%, and the S&P 500 -6.2%.

None of this is proof of a current or impending recession. It does, however, remind us that the market is volatile. Generally speaking, if the stock market rises or falls more than 1%, it’s considered a volatile market. And as one financial director has noted, the volatility of 2018 has continued into 2019: “We’ve started off 2019 with almost as many 1% moves in the broader market as we did in some prior years for the whole year.”

With volatility pervading the public markets, many investors are rightly asking: How should I be investing when the market’s behavior is so unpredictable?

Volatility is something that every investor should consider – more specifically how to reduce exposure to it through a wise investment strategy. If an investment portfolio can only perform well in a good, stable market, it isn’t serving all of its functions. A well-allocated portfolio should be able to help investors weather unpredictable or even bad markets. That’s because a well-allocated portfolio not only has the power to earn returns, it has the ability to reduce exposure to risk that causes volatility.

How are the Wealthy Weathering the Stormy Market?

No one is immune in a volatile market, but there are steps that many investors – most notably wealthy, institutional investors – are taking to reduce their exposure to volatility in the stock market. In a BlackRock study of more than 230 institutional investors (collectively holding over $ 7 trillion in assets), 51% planned to decrease allocation to public market equities in 2019. That figure is up from 35% in 2018 and 29% in 2017. While pulling back from the public market, many of these investors plan to increase investment in the private market. For instance, 40% of institutional investors surveyed intend to increase exposure to real estate in 2019.

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