5 Tips for Positioning Portfolios in Volatile Markets

By Michael Schoonmaker - April 6, 2018

Recent market swings may cause investors to be on edge but may also provide opportunities for those who remain focused on their long-term goals. Below are five ideas to consider during periods of market volatility.

1. Execute Your Long-Term Plan

Historically, corrections (i.e., declines) of 10 percent have occurred about every two years in the S&P 500® Index. The 10.1 percent correction in February 2018, although dramatic, wasn't unexpected to market experts. With the current market declines, consider rebalancing back to the original target weights in your investment plan and putting excess cash to work.

2. Reassess Your Risk Tolerance

Despite periods of declines, markets tend to recover, and have even rewarded those who remained invested. However, if you are uncomfortable with market risk, you may consider less aggressive equity funds or market neutral equity funds.

3. Evaluate Your Core Bond Holdings

Do your bonds act like stocks? Watch out for multi-sector1 strategies disguised as core bond funds. Multi-sector bond funds have higher correlations with stocks and may become even more correlated during market uncertainty. True core bond holdings are more correlated to the Bloomberg Barclays U.S. Aggregate Bond Index.

4. Evaluate Your International Holdings

Passively managed international funds may present hidden risks to your portfolio. Active funds that seek to add value through security selection may have the potential to manage risk and find opportunities in volatile markets.

5. Diversify with Asset Allocation Portfolios

Consider a well-diversified asset allocation or target-date fund that puts decisions about rebalancing and volatility into the hands of seasoned portfolios managers.

A target date is the approximate year when investors plan to retire or start withdrawing their money. The principal value of the investment is not guaranteed at any time, including at the target date.

Each target-date portfolio seeks the highest total return according to a preset asset mix. Over time, the asset mix and weightings are adjusted to be more conservative. In general, as the target year approaches, the portfolio's allocation becomes more conservative by decreasing the allocation to stocks and increasing the allocation to bonds and cash equivalents.

You don't have to go through volatility alone. If you need help reviewing your long-term plan, and aren't already working with a financial professional, contact us at 888-345-2441 for guidance.

Michael Schoonmaker
Michael Schoonmaker

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      1 Multi-sector bond funds (also known as non-traditional or unconstrained bond funds) seek income using a mix of fixed-income investments, such as high-yield corporates, mortgage-backed securities, and U.S. and non-U.S. bonds.

      Diversification does not assure a profit nor does it protect against loss of principal.

      International investing involves special risks, such as political instability and currency fluctuations. Investing in emerging markets may accentuate these risks.

      Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

      Rebalancing allows you to keep your asset allocation in line with your goals. It does not guarantee investment returns and does not eliminate risk.

      Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline.

      The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.