How to Beat Market Volatility
2018 was tough to navigate for many investors. A rocky start to the year, followed by a summer rally to new highs, but then all heck broke loose…
You remember, the S&P 500 lost 17% of its value in the last three months.
After that painful correction, many folks I talked with sold all their stocks in a panic. One of my close friends swore she’d never invest in the stock market again.
That’s too bad because she and every other investor who gave up on the stock market picked the worst time to do so.
They missed the powerful rebound rally this year that would have gotten most, if not all, of their money back.
It only took until late April for the S&P 500 to shrug off those losses and make a new all-time high.
I get it. Everybody loves volatility when it’s on the upside for the stock market, right?
That means you’re making lots of money.
However, volatility can be painfully expensive when the stock market is going down.
Look, Here’s the Reality
There’s nothing unusual about sharp stock market swings both up and down. Since 1945, there have been 37 corrections of more than 10% — the average correction lasted four months and dropped an average of 13%.
Bear markets, however, are much more painful and last a lot longer. There have been 13 bear markets since World War II and they lasted an average of 13 months with an average decline of 30%.
But of course stocks have bounced back to new highs every single time.
You just have to get used to the occasional corrections. And not panic.
It also doesn’t hurt to have good advice from an expert who knows how to manage volatile markets.
And that’s what I will show you next.
The Best Defense for Volatile Markets
Reward doesn’t come without risk, right?
Everybody knows that you can’t earn high rewards without taking higher risks!
Not so fast!
ETFs are a great way to score profits with minimal risk, especially during volatile times in the markets. ETFs allow you to spread your money across a basket of multiple companies. This means on volatile down days your risk (and actual losses) are minimized because your money is not stuck in one single stock.
And currently many ETFs have reached a sweet spot experts call the “efficient frontier,” This is simply the point where investors get the maximum amount of gain (return) for the least amount of pain (risk).
The number of ETFs that fall into the sweet spot of the risk/reward curve are few and far between, but we have a few we’ve talked about in these pages that I still like a lot.
The SPDR Gold Shares ETF (GLD). Gold is a great hedge against volatility, as well as a weak dollar. Two market conditions that have taken root in 2019.
This makes GLD a great hedge, and with gold soaring right now, this ETF offers big gains.
Two other ETFs I like for combatting volatile market swings are the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) and the ProShares VIX Short-Term Futures ETF (VIXY).
These ETFs are very volatile, moving both up and down quickly. This means unlike GLD, they aren’t appropriate for conservative investors.
However, with the VIX index now in the teens, these ETFs are in the sweet spot for producing the BIG rewards for investors right now.
They are also an excellent way to protect your portfolio from a severe stock market decline.
Bottom line: ETFs are one of the best all-weather investments, with proven returns even in volatile markets.
Consider adding one or some of these ETFs to your portfolio today!
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch