The daily swings in the market are often wide and unpredictable, which instills panic among many investors who are fearful of the downturns in their retirement portfolios.
But it's a whip-lash we have to learn to accept: after all, volatility in the stock market is “here to stay,” said Matthew Tuttle, the portfolio manager of Tuttle Tactical Management U.S. Core ETF (TUTT).
“All is not right with the world,” he added.
The first few trading sessions of the year were marked by steep losses amid fears of a global slowdown in China along with record low oil prices. The declines in the strength of global currencies along with concerns about interest rate hikes from the Federal Reserve drove even more uncertainty, said John Sweeney, executive vice president of retirement and investing strategies with Fidelity Investments in Boston.
“After several years of relatively positive markets, the question is whether investors will see more volatility in 2016 than they did in previous years,” he said. “These trading sessions have reminded investors that volatility is to be expected when investing.”
Why Volatility Exists This Year
The major shift in monetary policy by the Fed to raise rates after nearly a decade of a zero interest rate environment also played a factor. The Fed is expected to increase rates again this year, as many as three or four times through the end of 2016.
“Over the past few years, investors have been able to count on the Federal Reserve to pump money into the market and keep interest rates low,” said Martin Buchanan, a financial advisor at Buchanan Capital Management, an Oklahoma City-based financial planning firm.
When investors lack a clear view of the future of the market, volatility often occurs because the insecurity “causes investors to sell, thus creating more volatility,” he said. “With a hawkish Fed, volatility is here to stay.”
Volatility will always remain a component of the stock markets “as long there are differences of opinion in the value of businesses,” said Jacob Ma-Weaver, founder of Cable Car Capital, a San Francisco investment advisor.
“While mark-to-market declines are never pleasant to experience, volatility creates opportunities for the patient investor,” he said. “Of course, not all price changes are just noise.”