Mutual fund investors can be forgiven for feeling like the latest waves of market volatility have been going on for ages. Because the truth is, they have. Fortunately, your portfolio has the benefits of these five built-in shock absorbers.
1. A solid foundation
Your portfolio has been carefully constructed to help you stay on track to your long-term goals through calm and turbulent times alike.
Fixed-income funds, bond funds, conservatively managed balanced funds, and similar holdings help provide income and can provide relatively stable returns. Equity funds, including dividend funds and bluechip funds, offer steady growth over the long term. These funds typically invest in companies with a long history of steady and increasing returns.
2. Global exposure
International equity funds come in all flavours, providing you with access to growth opportunities in emerging markets and sectors (such as technology) not found here at home. Global funds also enable you to diversify by currency. All of these factors contribute not just to your portfolio’s growth prospects, but also to its long-term stability.
When markets are volatile, investors have a tendency to shy away from growth-oriented mutual funds in favour of income-based funds. It is one of the investment markets’ big ironies that this can actually magnify risk.
Sure, moving into money market funds might seem like a safe haven during times of market volatility, but persistent low interest rates may make it more difficult to reach your long-term objectives.
When your portfolio’s growth component is aligned with your long-term objectives and risk comfort level, you’re far less likely to be disturbed by temporary declines. In fact, you might even view them as an opportunity to add select funds at an attractive price.
4. Professional support
Financial research firm DALBAR tracks the gap between actual investment market performance and the returns of American mutual fund investors. For the 30 years ended in 2014, the S&P 500 (a benchmark for American equity markets) posted an annual average return of 11.06%. By comparison, individual equity fund investors averaged just 3.79%.1
The major cause of this shortfall?
Withdrawing from investments at low points and buying at market highs. With a financial plan and the support of our expertise, you are far less likely to fall into this trap.
5. Regular checkups
Managing volatility is just one of the reasons we recommend regular check-ins. It also gives us the opportunity to discuss what’s going on in the markets, review any changes in your personal circumstances, and consider any adjustments that might be appropriate for your portfolio.
DALBAR, Quantitative Analysis of Investment Behavior, 2014.
Larry Kleinmintz, R.H.U., T.O.T., M.D.R.T.
This newsletter is sponsored in part by Dynamic Funds. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performances may not be repeated. Dynamic Funds® is a registered trademark of its owner, used under license, and a division of 1832 Asset Management L.P.
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