For investors, 2017 was an unusually calm year. The S&P 500 stock index never changed by 2% in a single day, either up or down. There were only eight 1% days all year.
2018 is shaping up to be a very different story. CNNMoneyInvest reports that, in the first quarter, we’ve already had six 2% days and 23 1% days. Should this pace continue through the year, we’ll have the most volatile year for stock prices since 2008.
Two economic factors may be contributing to these wild swings. The U.S. economy is at, or nearly at, full employment. Labor shortages have appeared in some parts of the country, raising questions about how much more economic growth we may expect. As important, by some measures stocks have become expensive compared to their earnings. We might be approaching a market top. This is an environment that investors have not seen before, and they seem uncertain about which way to jump. Will the federal tax cuts result in a surge of economic growth, making this a good time to increase equity exposure? Or will external factors—perhaps a breakdown in international trade, or a new foreign conflict—trigger a selloff? No one can know for certain.
The way to calm volatility in an investment portfolio is by diversifying among asset classes—adding more bonds, for example. The bond markets also can be volatile, but at times stock and bond prices move in opposite directions. Having a well-diversified portfolio may bring steadier investment returns.
Prior to investment selection, TCK focuses on a key component of high quality asset management—creating a properly allocated and diversified asset mix that offers clients the best chance of achieving the highest return for a given level of risk. TCK’s methodology for conducting asset allocation policies are developed after examining the historical relationships of risk and return among asset classes. The policies are designed to provide the highest probability of meeting or exceeding the fund’s return objectives at the lowest possible risk.
As our longtime partners will tell you, we help our clients accomplish their goals, not our own. And we stay focused on the financial aspects of their lives so that they can stay focused on their priorities. We promise to minimize the burden of wealth management, and bestow the freedom to enjoy everything else.