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Uncertain Markets? Get Back to Basics

Uncertainty is always troubling for markets and investors. But with the right perspective and strategies, you can prepare for whatever comes along.

10/09/2023

Key Takeaways

Investors and markets don’t like uncertainty. Investors can get nervous when the future is unclear, causing markets to react negatively.

Having a long-term view and an investment plan can help you reach your goals, even with uncertainty and market changes.

Our consultants suggest going back to the basics and creating a plan that matches your risk tolerance, especially during uncertain times.

As humans, we don’t like uncertainty. When it comes to market volatility and your investments, the feelings are the same. It doesn’t help that the stock market can react negatively when the road ahead is unclear.

How can you deal with market unknowns? Financial consultants Ryan Adams, Jimmy Merdian, Sarah Pedersen and Addison Tantillo share their top tips for investing in uncertain times.

Uncertain Market Conditions Ahead

It wasn’t long ago that many financial experts predicted a recession for this year. It hasn’t happened—but it still could. Now headlines are filled with news about a potential “soft landing,” where we could see economic growth instead of a recession. The resiliency of the markets and the economy so far are causing some to hold out hope.

In the most recent Investment Outlook, our chief investment offers caution we may not be out of the woods yet, and the soft landing could be a fairy tale. They’re encouraging investors to prepare for uncertainty. What does that mean?

“I stress to clients that it’s better to plan than to guess what will happen next, “says Ryan. “So many predictions can be wrong, and it’s better to plan for all kinds of scenarios.”

Addison agrees, “It’s about having strategies in place for your long-term goals, rather than concentrating only on what’s happening in the short term.”

Is Uncertainty the Only Issue Right Now?

Uncertainty is a concern for our clients, but they’re also asking about the factors that are helping make things unclear. Clients ask about inflation, interest rates (and if they'll keep rising), the upcoming election, tax changes and geopolitical unrest. The questions really depend on each person’s experience and situation.

“Some clients are concerned about interest rates, some inflation, “says Jimmy. “Everyone perceives conditions differently, so it makes sense that your concern may not be someone else’s.”

He says that the answer to most questions is usually the same—have a good plan in place. Other things that can help? Keeping everything in perspective and remembering the basics. Here’s what that may look like.

When Markets Are Uncertain, Think Long Term

Many times, uncertainty can cause us to only focus on the here and now. Depending on how the markets are performing, that can make anyone nervous. Our consultants stress that investing is a long-term prospect, so it’s important to keep a long-term view too.

It can be tough but try to keep focus through uncertainty and when markets move up and down. “I remind clients that they wouldn’t measure a cross-country road trip with a ruler,” says Addison. “You can’t judge the markets week by week or month by month either. Historically, the markets have bounced back after volatility.”

Ryan says, “I like to help clients put today’s conditions in perspective.” Even a look back at the same time last year—when stocks and bonds were in negative territory—can help you see markets don’t always stay the same.

It’s good to consider that most market conditions are temporary, but a good plan is designed to help you endure lots of market ups and downs.

Check Your Risk Level For the Ups and Downs

All investments have risk, and it’s important that the risk you take with your investments matches you. Investors who are particularly worried about uncertainty and market fluctuations may want to check if they have the right amount of risk and reward potential for their situation.

Having the wrong amount of risk can make you unduly nervous and cause you to make short-term decisions that could hurt your portfolio in the long run.

“I always like to take clients back to their risk goals,” says Ryan. “If they’re in the risk level that makes sense for their timeline and comfort, then staying the course may be your best action. But if they’re overly worried, we should talk.”

Get More of Our Investment Outlook—Watch the Webinar on October 12

There’s still time to register for our Investment Outlook Webinar: Is the Soft Landing a Fairy Tale? Hear our views and get key points on portfolio implications. No time to watch? You can catch it on demand later.

Consider the Basics for Uncertain Markets

Remembering basic principles about investing may help you get through the tough times. During uncertainty, our consultants emphasize diversification, dollar cost averaging and having a bucket strategy. All three may help put you in position to ride out uncertainty and be prepared for different conditions.

1. Diversification

Diversification can sound complicated but it’s a surprisingly simple way to manage risk in your portfolio. Diversifying investments can help balance losses in one investment with another that's performing well. This is because different investments react differently to market changes.

“Diversification is so critical,” says Addison. “It can help you weather market ups and downs and have a smoother path to your goals.”

2. Dollar-Cost Averaging

Investors can take advantage of market swings by investing regularly and practicing the strategy of dollar-cost averaging. With this strategy, you buy more shares when prices are low and fewer shares when prices are higher.

“Dollar-cost averaging can help investors grow their portfolios,” says Ryan. “It can also benefit your mental state by knowing you're still investing and not on the sidelines, waiting to jump back into the market.”

3. Bucket Strategy

Those who are concerned about current conditions may also want to use a bucket strategy. It may be especially helpful for those who are near or in retirement and concerned about their retirement income.

With the bucket strategy, you divide your investments into short-term and long-term buckets. For short-term goals, you invest in less risky investments because you need the money sooner. Typically, you can take more risks with your long-term goals.

“Clients who use the bucket strategy may be able to ride out short-term volatility,“ says Addison. “They’re also not sacrificing potential growth for their long-term goals.”

Are these principles right for everyone? We are advocates of trusted investing principles but also recognize it depends on your circumstances.

“Whether you have $1 million or much less, these are principles that every investor should at least hear about,” says Jimmy. “No matter how different your situation may look, the benefits have been tested through time.”

Should You Change Your Portfolio Now?

When uncertainty ensues, investors may think they need to make a change, but it really depends on your plan (and if you have one). In our experience, those who may want to act are those who are trying to figure out the best time to get in or out of an investment. However, feeling confident about your plan can help you avoid those reactions.

“Last year was a tough one for investors, and some aren’t back to the same level they were before. So, it’s understandable they may want to act now and add more risk to their portfolios,” says Addison.

But with so much uncertainty still out there, staying the course may be your best option, especially if you’re at an appropriate risk level and you have a solid financial plan.

“I like to get to the heart of the matter,” says Sarah. “Let’s find out what’s causing your concern and then we can find a solution. That’s a better option than making quick changes that may not work long term.”

Consider Financial Help

Our consultants believe those who have a plan or who are letting our professionals manage their portfolios have fewer questions as they look ahead.

“Clients in our Private Client Group are interested in what’s happening in their portfolios, but there’s also a relief in knowing that our investment professionals are making the decisions for them,” says Ryan. He says it also helps clients to know that they can reach out any time and talk about their questions.

Do you need to talk to a professional? Of course, it depends on you and your needs, but Sarah says the stakes get higher and higher every year you get closer to your goals. “I liken it to how I maintain my car. For regular maintenance, such as oil changes and air filters, doing it myself won’t impact how my car runs long term.”

But for those bigger repairs, leaning on a professional becomes more important. It can be the same way for your investment plan.

And the best thing about having a plan? Confidence. Knowing it’s a good fit for you can help you keep your long-term view even through the uncertainty.

Contributors

Ryan Adams

Ryan Adams

Financial Consultant

Jimmy Merdian, CFP®

Jimmy Merdian, CFP®

Financial Consultant

Sarah Pedersen

Sarah Pedersen

Financial Consultant

Addison Tantillo, CFP®

Addison Tantillo, CFP®

Financial Consultant

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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.

Private Client Group advisory services are provided by American Century Investments Private Client Group, Inc., a registered investment advisor. This service is generally for clients with a minimum $50,000 investment. Call us to determine the level of service that is appropriate for you. The advisory service provides discretionary investment management for a fee. All investing involves risk.

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.

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

Dollar cost averaging does not ensure a profit or protect against a loss in declining markets. This investment strategy involves continuous investment in securities, regardless of fluctuating price levels. An investor should consider his or her financial ability to continue purchases in periods of low or fluctuating price levels.