Assets and Taxes - How To Deal With Market Volatility (From Financial Experts)

Episode Date: May 2, 2025

If you're watching this, you're probably really nervous about what's going on with current market conditions. Take a deep breath. It's going to be okay. We break down exactly everything that you need to be doing and thinking about when it comes to market volatility. Save this episode whenever you need reassurance!(0:00) Intro(2:17) What should someone be thinking when they see volatile markets(9:55) Timing the Market(12:20) Retirement Contribution Strategy(14:18) How to manage a modern portfolio(28:26) Risk in Retirement(32:45) Final TakeawaysSee Your Risk Score (MyRisk): https://assetstrategy.com/my-risk/Our Financial Wellness Tool: https://assetstrategy.com/myblocks/Our Financial Guides: https://assetstrategy.com/financial-guides/ Once you're ready, we can offer you some professional guidanceBook a FREE discovery call today to explore how we can help you: https://assetstrategy.com/contact/Call the Asset Strategy Team: 781-235-4426Connect:Website: https://assetstrategy.com/LinkedIn: https://www.linkedin.com/company/asset-strategy-advisorsFacebook: https://www.facebook.com/people/Asset-Strategy-Advisors/61573136047425/Instagram: https://www.instagram.com/asset_strategy/

Today we're talking about market volatility. The economy has been front and center in the headlines and not in a good way. A lot of people are nervous, even to the point where folks are wondering whether they should be selling off their 401ks. This was bound to happen. It's happening now. That uncertainty drives swings in the market that you typically don't see. It is very important to follow a disciplined investment strategy and remain invested because you know, you want those assets to grow for you. If you miss those best days

those returns have gone you'll never make up those returns. Welcome back to Assets and Taxes. I'm Bart Wilson, operations manager here at Asset Strategy. And today we're talking about market volatility. Today I'm joined by my friend and colleague, Rosario Salamone, director of investment research here at Asset Strategy. And lately, the economy has been front and center in the headlines, the first couple months of Trump's presidency, and not in a good way. Trump's implementation of reciprocal tariffs has really stirred the pot internationally. And the result has been some serious market volatility

and some serious concern about the state of the economy. A lot of people are nervous, even to the point where folks are wondering whether they should be selling off their 401Ks or what to do with their investment accounts because they don't know what these tariffs might trigger in the short and long term. So let's just start by saying this.

We would not recommend selling off your 401k or panicking right now. Instead this podcast is going to be kind of like your therapy session. We're here to talk about market volatility, calm some of those nerves, talk through why everything is going to be okay and why we recommend following a disciplined investment process for times like these. Make sure you bookmark this podcast anytime you see the markets acting up, acting up in not a great way so you have something to go back to. So let's jump in.

So, you know, let's start with this. What's the first thing people should be thinking of when they see? These kind of headlines and they see the market really volatile. Thanks Bart. Thank you all for watching I think the first thing we should do is expect volatility Markets all volatile, you know to get the the returns we've seen the price of that is Volatility so the first is just getting your mindset right on that. Volatility is part of the game, it's part of investing. So you have to be aware of that before you allocate

to your portfolio, before you put money in the markets. And making sure that your level of risk is aligned to your comfort level. So taking a risk score, you know, we have some on our website, asstrategy.com, it's the My Risk tool, you know, feel free to see what your risk score is, and then you can kind of allocate your portfolio

based off of your risk score. And then also knowing that you're in a, what we do is globally diversified portfolios, so you're not just owning the S&P 500 if the S&P is selling off, or you're not just owning the small cap companies if the Russell 2000 is selling off. So knowing that a globally diversified portfolio in and of itself is volatility dampening,

where you could still participate on the upside, but protect on the downside. And if US isn't working, well maybe Europe and Japan are working, so that offsets some of that US exposure. If maybe stocks in general are not working, it doesn't matter if it's here or abroad, they're all selling off with a correlation of one, well then maybe in that environment your bonds are working.

It could be your longer duration bonds, your shorter duration bonds, or maybe you have real estate in the portfolio, you have a long short. And there's many different product out there that could give you a different correlation profile depending on the environment. I think that that's really important to talk about diversification and we'll probably dive into that a little bit. But I think for this kind of therapy session, I'd love to ask you, I hear often talking with clients, what if I lose everything?

And so that can cause a lot of panic, especially if they have a lot of responsibilities. They have a retirement upcoming and they need people to rely on their savings. But I talk about this frequently. Volatility doesn't mean the US US American economy is gonna collapse Right. So maybe it'd be a good good time to talk about what what is volatility, you know Apple You know a an energy company They're still gonna be producing things during this time during volatile times, right so help us understand What really is volatility? How should we be thinking about it? Yeah, I just view volatility as just Wild swings in the market is the way I'll view volatility or it's a it's a headlines that drives uncertainty and that that uncertainty drives

Swings in the market that you typically don't see So, you know, we might see an environment where the Dow Jones is down 500 points or a thousand points You know for me that's that's volatility because it's not it's not a normal environment So there's these periods whether it's based off of government policy or economic growth, you know expectations of recession or being in a recession, those all drive uncertainty and it's really the uncertainty that drives volatility, as the market's trying to now price in something different. And with that comes volatility as a lot of times it can be panic selling. So then you got that kind of like that snowball effect or that feedback loop where selling leads to more selling

which then leads to more selling. And then it's that downside volatility that people are worried about because there's also that upside volatility but that's the good volatility. That's the ones, you know, that's the volatility that we enjoy because the market's moving upward as, you know, maybe there's a positive outlook ahead. So it's kind of like the reverse of that panic selling. It's that fear of missing out, buying.

I think that's a really, really important point. And something that I didn't understand until I started working in this industry is that the economy still moves forward. It's when you think about investors, what they try to do is generate returns. And so when there's something that triggers some uncertainty in what the situation

is, as Sal was saying, and they don't know what their returns are going to be, then they have concerns about what they're invested in. And so they try to make a change proactively and change their investments, which then triggers and cascades throughout the economy. But nonetheless, the economy is still going, things still have value. So I think that's a really important point. Something is triggering a different expectation. And so as things settle out, what's the new norm going to be?

What's the new expectations that we can grow from there. So with that, you know, we never know what that triggering event is going to be, right? But then just, sorry, and then at some point the market just prices that in. So even though it's solo volatile time period or the headlines are still scary, the market's kind of already has now priced that in and it's now looking six, nine a year out. Which is why, you know, a lot of times the S&P 500 will bottom while we're still in a recession. Because it's already been priced in and now the market's forward looking.

So now it's looking out a year, 18 months out. Which is again, something that, you know, when I talk to investors, they, they want to know, Hey, I want things to be calm, right? Before I put my money back into the market and I invest again, um, I want the economy to be in a good place. But what Sal is saying is that what the markets do is they price these things in. So there's volatility while they're trying to figure out, okay, what's the new normal?

How do we build and grow and invest from that new normal? They're trying to figure out what the new normal is, but a lot of the time when people see the markets go up and things start to feel better, they've already, the markets already are way ahead of you. So that stability allows for growth, but if you panic and sell out down here when there's still volatility, the market's priced it in and now things go up and you're starting to

feel good about it, but you feel good up here and buy back in. Well, there's all this growth in between that you're missing out on, which if you had stayed the course and stayed invested and followed a discipline investment strategy, you would have been able to capture part of that. Something that we wanted to talk about today is kind of timing the market. And there's a couple different statistics Sal has about some of the risks of doing so. So I'll tee up for the first one, Sal. If you miss some of the best days in the market,

and I'm talking over the last couple decades, just a handful of days in the market, how does that affect your long-term returns? Yeah, we have a great chart, staying invested and missing the best days. And one of the things I also tell clients is during these volatile periods, you have to, if you wanna sell out completely,

well, okay, so you got out completely, now you gotta time the getting back in part. So you gotta kind of be two for two, getting out and then getting back in. Gamble twice. Exactly, and if you miss those best days, those returns have gone, you'll never make up those returns.

You've lost them. So if you miss that spike higher, then it's gone. You cannot make up for that performance. So we have a chart here that shows, you know, if you invested $1,000 and you stayed the course, after 25 years, you're at $4,200. But let's say you missed the five, just the five best trading days. Just five. Yep, just five. You're down to $2,600. So that's a noticeable gap in investment performance.

If you missed the 20 best days, you're at $1,000. And if you missed the 40 best days you're at a thousand dollars and then if you missed a 40 best days you're at four hundred and seventy dollars So a lot of times the best thing to do is just stay the course know you're in a diversified portfolio you have things to offset your your sp 500 exposure or you know your us equity exposure and um Just maybe don't log on to your account during those You know, I'll do it. You know what? I'm not gonna log on to my brokerage account.

I'm not gonna log on to my 401k account. I don't need to. You know, it's money for the future. And if you have that mindset, okay, this money is for the future. It kind of makes it easier to not log on because you don't need it tomorrow. You know, I don't need it today.

If you're enjoying this episode of Assets and Taxes, we'd encourage you to like and subscribe and comment below. Thank you. Now back to this episode of Assets and Taxes. If you are still working, have many, many years until retirement, maybe this volatility is a good time to actually increase your contribution into your 401k plan because now you're buying stuff on sale.

You're allocating to that large cap stock that sold off 20%. So why not just increase your monthly contribution? It's 20% less. Yeah, yeah, yeah, exactly. So a lot of times, and you should be doing the opposite. So a lot of times, instead of stopping or reducing your withdrawal rate into your contribution

into your 401k, you should be doing the opposite, maybe increase it to take advantage of that sell off. It's kind of like when it's Christmas time and everything's on sale, you know, you kind of the week after Christmas Yeah, yeah, yeah exactly so same so same mindset there. Okay, this large cap stock is still You know, we still have a great long-term Forecast outlook for the US economy. You know, the US economy, no matter what's been thrown at its way over time, that the SP500 is lower right, lower left, upper right.

So, you know, it's hard to bet against the US economy for an extended period of time. History tells us it goes up over time. That's what we've seen. History tells us it goes up over time. Yeah. Yeah. Yeah. Yeah, hopefully you've thought about you know Times like these will probably happen as you're investing. So, you know Before today when the market is volatile, you know yesterday yesterday when when things were, you know smoother You felt more confident in a better place You invested your portfolios whether it's your 401k and retirement accounts, whether it's other money or assets that you have in the markets.

You thought about what kind of strategy can we put in place for the good times and the bad. And there's two parts of that that I really love to have Sal talk about. One is just a high level, what do we do when we manage a diversified portfolio? Something called modern portfolio theory, the key words there are rebalancing and then awaiting a portfolio. But how does that benefit us during the good times and to benefit us during the bad times? The other piece of it is, you know, we have these good times and bad times periodically. History tells us that this is something that we should be expecting.

So we really need to plan for and not be caught off guard. So you know, how often does this happen? What does that look like? And then the second is, what do we do during these times? You know, there are, this is historically what you should be expecting when it comes to drawdowns. This is based off of Fidelity put together this chart talking about historical drawdowns. Historically you should expect three corrections of 5% per year. You should be expecting one correction of 10% per year, one

correction of greater than 15% every three years, and one correction of greater than 20% once every six years. That number kind of correlates into on average when should we be expecting a recession in the U.S. Historically, it's every six to 10 years, the historical average of when the US enters a recession. So- Just to make note of that, it's kind of strange because where we are right now

in kind of the beginning of 2025, the first recession, or the last two recessions have happened in the last two years, but then we had kind of a golden decade where since the great recession in the 2000s, we've had a significant period of growth. So just highlighting that these things happen periodically, we don't know when to expect them or what will trigger them, but that's why we have this discipline investment process.

We expect that these events will happen. And I'm sorry to interrupt you, Sal, let's talk about what we do, you know, when these events do happen. Yeah. And then, you know, just going to piggyback on what you're saying, you know, from the end of the 08 recession crisis through really the the beginning of 2020 with COVID and the COVID uncertainty, that was really an abnormal time in which there wasn't, it was such a long period of economic growth and stability there that it kind of spoiled us in which there

wasn't a whole lot of volatility in that period. So we kind of forget what a normal market environment looks like. And a lot of that was due to steady growth at around 2% inflation that was coming in below target. So that allowed the Fed to quickly cut interest rates, allowed the Fed to start QE programs to really dampen some of that volatility that if the Fed didn't have that flexibility well then maybe we would have maintained that normal environment of you know three corrections per year of five percent that annual ten percent sell-off so

we'll see what maybe moving forward we're in a more normal environment based off of history Given the the annex the the uncertainty around inflation. So maybe the fed is no longer quick to act Um to to cut off some of that volatility by introducing qe or cutting rates um, so maybe it's just getting that mindset of okay, um moving forward is going to be a more volatile environment mindset of, okay, moving forward is going to be a more volatile environment. Am I positioned in a way that I'm comfortable with that increased volatility moving forward? If not, maybe I need to decrease my stock exposure. Or what we do is we have a globally diversified portfolio. We have kind of four buckets to portfolio construction.

We have public stocks, public bonds, alternatives, and private markets. So you can get some real nice diversification benefits within those four buckets. And then again, we mixed the long-term with the short-term. So most of our portfolio has a long-term focus of, you know, three plus years. So we really don't touch too much when it comes to to that pocket. But we do have a segment of the portfolio where we'll try to take advantages of opportunities where we're more dynamic or more tactical depending on what our outlook is for the U.S. economy, for interest rates, for government and Fed activity or what their expectations are for future action, where we might sell out of the US and go into Europe, or we might sell out of small cap stocks and go into a manager

that can go long volatility or the VIX, or maybe we get out of longer duration fixed income and go into floating rate if we think interest rates are going to move higher. So there's a portion of the portfolio that we try to take advantage of that zero to nine month timeframe, but most of it is that three year outlook. And a lot of times the forecast for that three year outlook is pretty good. So you don't need to be doing too much. You know if you could get through that that period and that just reminds me of a chart that we have as well that talks about the length of bull and bear

markets. Let me call that up. So I think that's important for for this one. The short version is, historically, these don't last as long as it feels like they do. Yep, yep. So since 1956, the average bear market has lasted one year and two months with a decline of 36%. And then to your point, the average bull market lasts five years and nine months with returns of 192%.

So it's hard to get overly bullish on your whole portfolio knowing that over time bull markets last a lot longer than bear markets. And are a lot bigger too. And a lot bigger, yeah, yeah, yeah. So we do have a dynamic posture and a certain percentage of the portfolios. Most of it is that modern portfolio theory, global diversification.

And then we really just focus on correlation. So if we want to drive down correlations, then we might increase the alternative bucket or add to certain segments of the private markets to bring down that volatility, especially during those periods of increased uncertainty, where the best course of action sometimes is just to overly diversify. Yeah, hold the course in speed. Yeah, during those periods. And I think what Sal is talking about is having, he's going into some different elements

that roll up and we build into a strategy. But what he's describing is two concepts that we subscribe to. One is called rebalancing and one is called waiting. So what that basically means is if we think that things are gonna do better in that short nine month timeframe or things are gonna do worse, we going to put a little bit more, you know, one, two percent, sometimes

half a percent, sometimes more, three percent, right, whatever it is, we're going to put a little bit more in things we think are going to do well and what history tells us are going to do well. We're going to take a little bit out of the things that aren't going to do as well. Similarly, we're going to do what we call weighting the portfolio. So over time, you know, the economy follows a cycle, and based on where we are, we're going to say, okay, well, if your risk profile is, let's just say, 60 percent stock and 40 percent bond is a pretty well-known investment strategy.

The bonds generate some return, they generate income and act as a ballast, the stocks we have in there for growth. As the economy goes through cycles, we weight it so that in the parts of, the cycle leading up to a recession, typically the Fed is maybe tightening credit, trying to rein things in,

not trying to spur as much growth, trying to control some aspect of the economy. We might take the advantage of that and take, you know, weight the portfolio from 60-40, maybe we go 55% stock and 55% bond. So not just the shorter term waiting, but actually the secular waiting as well. So when the market does drop and if it drops, you're more protected.

And then we do what we call, and you know, on the flip side when things are starting to look a little better, we do the opposite, right? We weight it more toward small cap as Sal was saying, more towards technology, more towards parts of the economy that historically we know do better at the beginning. So you know, weighting is basically, you know, we're going to move the portfolio, the strategy a little bit to take advantage of what we know are going to do better in certain situations. And the other piece of that is rebalancing.

So rebalancing, you know, in simplest, is bringing it back to our target. So we weight the target, weight the risk profile slightly based on what we're seeing, what we're expecting, and then we continually, periodically, but consistently as part of the strategy, rebalance to bring it back to that target. Now what does that do for you over time? As the stock market's going up and down, let's say it goes up, you're 2% over, we've got a little growth, we rebalance, we sell the stocks, we buy the bonds,

and that brings us back to our target. But what have we just done? We've sold when things are more expensive, right? We've sold when we've made money, and we buy the bonds, right? Now on the flip side, when the stocks go down, we also do the same thing. We rebalance. We sell the bonds, which are now a higher portion of the portfolio because the stocks

have gone down in value, and we take that money and we buy the stocks. So it might seem like, hey, economy's not doing well. What are you doing? Why are you buying more of those stocks? But the stocks are down right they're on sale as Sal was saying earlier so if we follow that cycle over time what does that give us? Well we're putting more money in the things that are going to do better less money in the things that we don't expect to do as well and we're buying when things are cheap and on sale and we're selling when things are high and on sale and we're selling when

things are high. So as the market goes like this we can take advantage of that in both of those ways. What that does for you over time is it allows you to capitalize and take advantage of these periods of volatility. If you sell out to cash or you panic you could really hurt yourself longterm rather than saying, hey, you know, this money is I'm investing for my future. It's not something that I should be touching right now. I should let, I should be following that investment, discipline investment process so that I can take advantage of these periods of volatility, right?

These advantage, advantage of these periods of up, right? These advantage of these periods of up and down. When things are uncertain and the investors are trying to understand what to expect next and they're trying to price in that uncertainty ahead of time. So that was a lot, but hopefully it gave some clarity to the concepts and the strategy that we execute on behalf of our clients to help you understand what Sal was talking to you before. Sal, I just talked a lot. Thanks for listening as well here.

Do you have anything to add to that? That was great. The other thing I would add is, and it's really just to compliment what you're saying, is those are all procedures and policies that are in place to help reduce the emotional impact that our minds have, that our minds want us to take because money is emotional and a lot of times our own minds are our greatest enemies and it shows up during those times of volatility. So knowing that, okay, you know what?

If my mind is telling me I need to do an action, I'm just gonna rebalance. So I'll sell some winners, I'll put some of those gains in the bond market and I'll buy the SP500 or my equity exposure knowing that it's now on sale. So that's one way to maybe calm your mind is by having

You know these procedures in place such as you know, what are the weightings and and and the rebalancing? I think it also goes to something that Sal mentioned earlier Timing the market right if you if you don't hit the right time to sell and then the perfect right time to buy You could really be hurting your portfolio If you don't hit the right time to sell and then the perfect right time to buy, you could really be hurting your portfolio. It's basically gambling. If it was easy to do, everyone in the world would do it. But even the people that have spent decades and tons of education researching this, they're

in it. People that follow this every day for their full-time job like Sal, nobody can time the market. Nobody knows exactly what the best time to do anything is. So because of that, if we follow a disciplined investment strategy over time, you're not gambling, right? You're following your risk profile to get more growth appropriate with what your comfort level is and by following that discipline investment style strategy you're you know you're guaranteeing that you're following a playbook that will you know reflect what your hard-earned savings

will need to do for you over time within you know your risk tolerance. Let's say you're watching this and you're newly retired, you just retired and it's a period where the market has sold off. Even though you're just freshly retired, you also need a long term mindset because that money has to last you, you know, given life expectancy, exactly 20, 25 years. So being ultra conservative, just because you retired could be just as aggressive as being super aggressive and concentrated in just 100% technology or whatever it is. So even though you have these periods of volatility and it's great, I just retired and now the

market's down 15%. You still got 25 years to go. So I would just take a deep breath. That's why you're in a diversified portfolio. You got some bonds in there that you can, and especially today with the yields, you get some nice income. There's products out there that are generating

some really attractive yield and income today that we weren't getting in 2017, 2018, 2019, 2020. When the economy was roaring and rates were nothing. I mean, mortgages were 2% too, but a whole piece of your portfolio was making pennies. It wasn't generating any return. So again, that's why we follow this strategy. Although equities are a little more rocky,

the bonds are doing more than twice as well as they were a couple of years ago. So having a diversified portfolio is important for, for, you know, um, consistency, um, but also, um, you know, making things, making sure that the, the ride, the roller coaster ride is, is, uh, is relatively smooth, um, and predictable. If you're enjoying this episode of assets and taxes, we'd encourage you to like and subscribe to tune in for future episodes.

We'd also welcome any comments that you have, questions, thoughts, praise. We want to be engaged with our audience and make sure that we're creating content that's relevant to you. So please comment below and we'll get back to this episode of Ass and taxes. So, Sal, I'd love to expand on that a little bit, um, and how we, uh, as financial planners, um, approach a risk level in retirement. Um, it is very important to follow a discipline investment strategy and remain invested because, you know, you want those assets to grow for you rather than when you're adding to them, you're now withdrawing off them to live off of.

Um, but how do you know what risk, what, what risk profile to take? How do you know how much growth you're going to need to sustain, you know, your, your income through retirement? Um, how do you know that your assets are going to last and you, you know, have peace of mind that you should stay invested, um, and not kind of panic or be concerned if there's you know market volatility early on in your retirement or when you're about to retire. We answer those questions you know with by looking at the numbers. We'll actually go through and say hey what kind of quality of life do you have?

What does that what does that lifestyle cost you? And we'll map out the numbers, what it will be with a pretty good estimation of what your retirement will look like financially. Then we work backwards from there and say, okay, what kind of risk profile do you need within your savings to make sure that it'll last you during that time while you're also drawing off of it. So by looking at the numbers, the goal there is to say, we don't want you to take more risk than you have to, unless you want to, but we want to make sure that you have a plan so that you're not panicking, you're not scared when the markets hit volatility, right?

We want to make sure we align the right risk level for you. If you're approaching retirement, definitely reach out, give us a call at our website. I'll have Brandon put the link right here, I'll point there. And we can help you answer that question. So you are well informed with your decision about how to invest and importantly, why you're choosing that investment strategy. So we've talked about a lot today I think we've covered a lot about what the economy and what the markets do over time, how we

approach that, how we follow a disciplined investment strategy for the good times and the bad times, and what some of the risks are if you don't have a disciplined investment strategy, whether you're panicking or trying to time in the market or you sell to cash is unfortunately all too common. What would you say are the final takeaways that our viewers should be leaving this conversation with? The first one would be just mentally speaking, just preparing your mind for volatility. So it's not, the question isn't when will there be, or if there will be market volatility

or if the US will enter a recession. It's more, okay, when will that next volatility come? When will the US enter recession? So that way you're just, it's back of mind, you're mentally prepared, so when that time comes, it's not a complete surprise. You know what? This was bound to happen, it's happening now,

and that kind of transitions into having a well-structured diversified portfolio, a plan in place, whether it's a rebalancing at a certain time period, or being dynamic in a portion of the portfolio to take advantage of opportunities within zero to nine month timeframe. All that can provide some financial stability. Shutting off the TV at times, the market's down a lot.

It's hard to do. Yeah, I know it is. I don't need to keep on looking at that screen. It's down, click. Again, that just goes back to kind of calming the mind during those periods. So those were kind of the two main takeaways that I just wanted to emphasize on the way out here.

If you have questions or you'd like to review your investment strategy, you'd like to understand how do you pick an investment strategy, what your risk level should be. If you want to plan for these times of market volatility and have some peace of mind that when they happen, not if when they happen you already have a plan, a strategy in place to benefit from them, I'd encourage you to reach out and book a quick discovery call

with asset strategy with our team here and learn a little more about how we might be able to help you answer some of these questions and address these concerns. I'll have Brandon again put the link right there. If you don't feel comfortable reaching out to us quite yet, you can make an account with our financial wellness tool. We call it MyBlocks. It has loads of useful information and resources and tools and calculators to help you learn more so you can deal with your own

situation and hopefully reach out to us if something in there sparks your curiosity from there. Thanks so much for your time today and joining us on another episode of Assets and Taxes. We'll see you next time.