7 Actionable Strategies for Navigating Market Uncertainty

What you’ll learn:

  • How to make progress while minimizing taxes
  • Why and how to focus on risk and not volatility
  • A way to fight inflation using fixed income
  • How to take advantage of market declines

In an uncertain market, only one thing is certain, and that is market volatility. The lesson here, as always, is to focus on what you can control—how you respond to market volatility and how you invest your money.

Here are seven practical strategies you and your financial advisor can use to help navigate market turbulence, keep your financial strategy on track and achieve your long-term objectives.

Select a strategy:

1. Make progress while minimizing taxes.

It’s not what you earn, but what you keep. Help minimize taxes by holding tax efficient investments in taxable accounts and less tax efficient investments in tax-advantaged accounts.

How a financial advisor can help

Tax savings should not undermine your investing goals. A financial advisor can help create a balanced strategy for you and reevaluate your investments periodically for tax efficiency.

2. Give your portfolio a check-up.

Market fluctuations can cause your portfolio to drift from your intended investment mix, leaving you over-allocated to some areas and underexposed to others. Any time is a good time to check whether your portfolio is still aligned with your goals, time horizon, financial situation and comfort with risk.

Evaluate your investment mix and holdings

Reconsider your mix of stocks, bonds and cash. Check to see if you’re diversified within each of these asset classes.

What to consider with stocks

  • Size

    Different-sized companies tend to lead the market at different times.

  • Style

    Is it a growth stock or a value stock, and how does it fit your investment strategy?

  • Sector

    What part of the economy does it represent? Consider different industries such as health care, real estate, energy, technology, etc.

  • Geography

    This includes domestic, international and emerging markets.

What to consider with bonds

  • Sector

    Options include government, corporate and municipal bonds.

  • Maturity

    Bonds of different maturities provide diverse levels of yield and interest rate risk.

  • Credit quality

    Bonds of different qualities may perform differently as the business and credit cycles evolve.

Then check your individual holdings to decide whether an investment remains a good candidate for your portfolio. With stocks, you’ll want to check:

  • Business fundamentals: Metrics such as earnings and sales numbers, as well as stock valuation measurements like price-to-earnings ratio.
  • Analysts’ opinions: These can help you evaluate the companies' outlooks.

When it comes to bonds, be sure to review:

  • Credit ratings: Bonds can be upgraded or downgraded, which can affect your portfolio’s risk level.
  • Duration: A measurement of the bond’s price sensitivity to interest rate changes.

How a financial advisor can help

While a portfolio check-up is a good idea, it can be time-consuming to do it yourself. A financial advisor has the skills to evaluate your investment mix, and can stress test different scenarios to rebalance your portfolio and help you feel confident about your financial future.

3. Focus on your risk level, not volatility.

“Risk” and “volatility” are often confused because they’re often used interchangeably when talking about investments. But they are different. “Volatility” refers to price fluctuations in a stock, portfolio, or market segment during a short period. “Risk” refers to uncertainty and is much broader than volatility. Risk and volatility are normal when it comes to investing, and some risk can actually serve a valuable purpose. If you can’t accept some risk, you may not have the potential to achieve higher returns.

How a financial advisor can help

A financial advisor can help you build a portfolio that balances your risk tolerance, capacity for risk and the risk you’re required to take with your financial goals so you can stay invested, no matter the market conditions.

4. Check on your safety net.

Another way to feel secure despite today’s market uncertainty is knowing you have a good safety net in the form of emergency cash reserves.

How big should it be?

Are you a salaried employee? Look to keep three to six months' worth of living expenses in highly liquid accounts such as savings or money markets. Also, you’ll probably need to increase your total amount to account for inflation, which has been running at some of its highest rates in decades.

How a financial advisor can help

Having an emergency fund is great, but ultimately, your financial strategy isn’t complete without a plan to protect it. A financial advisor can help you think through difficult topics, including how to provide for your family’s future if you’re no longer able and how to pass on the legacy you intend.

5. Take advantage of market downturns.

Volatile markets aren’t all doom and gloom. They can present buying opportunities. But mustering the discipline to make purchases during a volatile market can be difficult. Dollar cost averaging can help reduce your anxiety about the investment process — and help you stay invested in the market.**

With dollar cost averaging, you build your portfolio by investing a fixed dollar amount at regular intervals. By investing on a set schedule, you develop discipline that can help you be a better long-term investor. Plus, investing systematically lets you buy more shares when the price is low and fewer when the price is high.

How a financial advisor can help

Working with a financial advisor can provide a disciplined process for your financial strategy. A financial advisor can also evolve your strategy as you prioritize new goals or manage life events, and help you seize opportunities as markets change.

6. Fight inflation by considering TIPS.

If you're concerned the rate of inflation will grow and eat away at your purchasing power, consider having some of your fixed income in the form of Treasury Inflation-Protected Securities, or TIPS.

What are TIPs and how do they work?

Like traditional Treasury bonds, Treasury Inflation-Protected Securities are backed by the U.S. government, so there is no credit risk involved. But TIPS also offer inflation protection. While the interest rate is fixed, the par value (or face value) increases with the Consumer Price Index. So, if the rate of inflation hits 5% annually, for example, your investment grows right along with it. Remember, if you buy a TIPS at a premium and we enter a period of deflation, future inflation adjustments could be negative.***

How a financial advisor can help

Selecting the appropriate asset allocation — which might include TIPS — is an individual decision. A financial advisor can help you find the right balance and right cash equivalents so you can feel secure and on track to reach your financial goals.

7. Talk with us to see if your plan is on track.

It’s only natural to wonder if the market volatility we’re experiencing is going to derail the better future you see for yourself and your family. The best way to find out is to talk with a financial advisor who can work with you to understand your personal goals and priorities, along with your financial picture, to help you plan holistically.

Edward Jones has been helping people do just that for 100 years, by having honest conversations, giving candid advice and offering pragmatic guidance. See if you are on track by finding an Edward Jones financial advisor who’s ready to answer any questions you have. Because there’s nothing more important to us than understanding what’s important to you. Contact us today for a complimentary portfolio review.

Go deeper. Download this guide which includes additional insights.

Important Information:

* Before investing in bonds, you should understand the risks involved, including credit risk and market risk. Bond investments are also subject to interest rate risk such that when interest rates rise, the prices of bonds can decrease, and the investor can lose principal value if the investment is sold prior to maturity.

** Dollar cost averaging does not guarantee a profit or eliminate risk, nor does it protect against loss in a declining market.

*** Yield-to-maturity cannot be predetermined because of uncertain future inflation adjustments. If TIPS are sold prior to maturity, you may receive less than your initial investment amount. If bonds are not held in a tax-advantaged account, investors will be required to pay federal taxes on the accredited value annually, although they will not receive any principal payment until maturity. When the inflation rate is high and the principal value is rising significantly, the taxes paid on TIPS may exceed interest income received. Therefore, TIPS may not be suitable for investors who depend on their investments for living expenses.

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation. This content should not be depended upon for other than broadly informational purposes. Specific question should be referred to a qualified tax professional.