Taking Advantage of Market VolatilityBoth stock and bond markets have been shaken over the past week by comments from Fed Chairman, Ben Bernanke. He believes the economy is strengthening, and therefore, the Federal Reserve may be able to start winding down their very accommodative monetary policy later in the year. Traders with a short-term focus have indiscriminately sold stock and bond positions as a result of these comments. Since Fed policy over the past four years has been a big factor in pushing interest rates down and stock prices higher, the thinking by these traders is that any tightening in monetary policy should have the opposite effect.
Since we take a very long-term focus with managing wealth, we strive to provide discipline when volatility increases. To help provide investment discipline, we develop a written Investment Policy Statement (IPS) for each client. This document provides guidelines for the mix of stock and bond investments that are appropriate for one’s goals and risk tolerance level. It specifies the types of investments that may be used in the portfolio, and it provides a strategic framework for placing trades. The IPS helps our clients stay the course when markets get choppy and also have the discipline to rebalance their asset allocation back to an appropriate risk level when market declines create dramatic changes in security prices.
Although no investment strategy is foolproof, experience has taught us that having the discipline to rebalance your asset allocation during heightened periods of volatility can add value over the long-term.
Published: June 21, 2013
Author: Chad Sander
Direct Phone: 812-602-6302
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