Are you wondering how to invest in a volatile market? If so, you’re not alone. A lot of people are struggling to find solid advice on investing in 2022, where there are multiple factors impacting markets, such as: fear of a recession, Ukraine and Russia being at war, and inflation.
Investing is a little different today than in 2019 and before.
Retirement planning can be very difficult because people are now seeing their 401(k) and IRA retirement accounts lose value. If you’re in retirement and the market is going down or sideways, it’s scary because you’re not working and funding your retirement accounts any longer. Traditionally, the closer someone is to retirement, the more concerning volatility is for them.
We’re going to share some of our strategies and approaches to investing in a volatile market to help you sleep better at night and relieve some of your anxiety along the way.
Quick Downturn Example in 2020
Downturns can be short-term or extended, and the approach you take to investing at these times must be adjusted. In most recent memory, we had a short downturn in March 2020 when the world first started to really pay attention to the Coronavirus.
The market fell 34% for the year, and by the end of 2020, the market was up 17%.
Because of the fast downturn and recovery, the event wasn’t a major issue for the market. There was actually a lot of opportunity to be had in 2020 despite lockdowns and people being stuck at home for two years.
Downturn of 2022
In 2022, we’re dealing with some of the repercussions of the measures taken in 2020 to bring markets back to stable levels. The government pumped a lot of money into the markets to help us get through the pandemic, but it has led to 2022 being a down period.
The only day that the market experienced gains was the first of the year.
In June, the major indexes hit their yearly lows, and then they rallied and recovered to being down 10%. At the time of this posting, we’re back to experiencing lows of:
- S&P 500 being down 24%
- NASDAQ being down 31%
Even the bond market has been decimated by the high interest rates. Using bonds to de-risk your portfolio to reduce volatility hasn’t worked at all in 2022. Combatting inflation and the war in Ukraine have both caused major issues in bonds, oil and gas prices.
Global economics have remained rattled throughout 2022, and it leads to the question of how to navigate the markets.
We haven’t dealt with markets like we have now since 2008 when the last major recession hit. Navigating markets using common strategies is more difficult because of:
Pricing is running up, so we have to look at ways to change our approach to investing.
Two Funds We’re Sitting in with 2% Gains
Right now, we’re investing in two main funds that are offering 2% gains with a high level of security. We are investing in:
- Government obligations
- Treasury obligations
These funds pay a floating rate of return based on short-term treasuries or other factors. Every seven days, the rate changes. Due to the current state of the market and interest rates, the return we’re seeing is a little over 2%.
Since these are funds, every 15th of the month, the account is credited with a dividend payment for the interest earned.
We avoid the volatility in the market and work to protect our clients’ principal while providing a very modest return.
However, we’ve also started to put money into structured products, and they’re backed by large banks, such as JP Morgan. The purpose of these is to put together a fund that offers an interest rate based on environments with high volatility and interest rates.
We basically go shopping and put together an offering.
The offer paid a 9% coupon, and we’re working on one with an 11% coupon. We don’t want to put all of the money into these accounts because the coupon rate can change every three months. Banks can also choose to close these accounts at the end of the term, so while the rate of return is great, it is also a lot of work.
We invest 2% to 24% in these accounts and use other tactics to keep money growing, even if it’s not at the rate people are used to when putting their money in the stock market. When markets start to balance out, using these products may not make sense.
Investing right now, for us, means investing in products that:
- Are low risk
- Have no stock market correlation
- Do well in rising interest rate markets
Of course, investing using the strategy above is more complicated than investing in an index, but it’s what we’re personally doing to help manage risk right now.
Are you looking for more answers, or are you unsure of how to invest in these types of low-risk products that do well in rising interest rate markets?
Click here to schedule a call with us today.