Active Management: A Potential Cure for the Volatility Blues?

Active Management: A Potential Cure for the Volatility Blues?

Even when markets seem to be steadily climbing, investors can find it difficult to maintain the discipline required to stick with a long-term investment plan. When markets become volatile, that discipline can be even more challenging.

Market volatility can challenge even disciplined investors, especially when it triggers emotional reactions. People often value stability and predictability, and during volatile periods, fear of loss can overwhelm the desire for gains. This natural tendency, called loss aversion, makes investors more sensitive to losses than gains. Unfortunately, during times of market turbulence, the constant barrage of media warnings and expert predictions can push people to make impulsive decisions, which often undermine their long-term strategies.

Despite common fears, market volatility is not inherently bad. In fact, market corrections are vital for the health of the stock market, acting as a release valve for overinflated prices. However, passive investing strategies may not offer sufficient protection during these downturns. Active portfolio management, on the other hand, allows for tactical adjustments, such as shifting allocations or reducing exposure to volatile sectors, helping to safeguard against large losses.

Active management can provide essential downside protection, especially during heightened volatility. By adjusting portfolio weightings and using strategies like time-frame diversification or increasing cash holdings, an active manager can reduce risk while preserving capital. While no one can predict market movements with certainty, active management offers more flexibility and control, providing better protection from emotional decision-making and potential market declines.

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Published On: April 27, 2018|Categories: Resource Center|Tags: , |

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This material is provided for informational purposes only. The information contained herein should not be construed as the provision of personalized investment advice. Information contained herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Past performance is no guarantee of future results. Investing in the stock market involves the risk of loss, including loss of principal invested, and may not be suitable for all investors. This material contains certain forward-looking statements which indicate future possibilities. Actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that any views and opinions expressed in this material will come to pass. Additionally, this material contains information derived from third party sources. Although we believe these sources to be reliable, we make no representations as to the accuracy of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change without prior notice. For additional information about CTS Financial Planning, Inc. and the material posted on this website, please review our Important Disclosures.

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