Market Volatility: Navigating The Investment Storm

It depends on your financial situation and your risk tolerance. If you have a short time horizon, are feeling insecure about your job, or are risk-averse, now may not be the best time to invest. However, if you have a long time horizon, job security, an emergency fund, and no high-interest debt, now could be a good time to invest.

The stock market has been volatile recently due to global economic uncertainty, but stocks are currently cheaper than they were a few months ago. If you are a long-term investor, you can take advantage of this opportunity to buy stocks at a discount. However, it is important to remember that the stock market can be extremely volatile, and there is no guarantee that it will not continue to fall.

If you decide to invest, there are several options to consider, including growth stocks, stock funds, bond funds, dividend stocks, value stocks, target-date funds, real estate, small-cap stocks, robo-advisor portfolios, and Roth IRAs. It is important to understand the risks and rewards of each investment option before committing your money. Diversification is also key to long-term investing success.

High-dividend, high-quality strategies

Dividend stocks vs dividend funds

There are two main ways to invest in dividend stocks:

• Through funds, such as index funds or exchange-traded funds (ETFs), that hold dividend stocks.
• By purchasing individual dividend stocks.

Dividend ETFs or index funds offer investors access to a selection of dividend stocks within a single investment. The fund will then pay you dividends on a regular basis, which you can take as income or reinvest.

Choosing the right dividend stocks

When choosing the right dividend stocks, it is important to:

• Compare the dividend yields among its peers. A company's dividend yield that is much higher than that of similar companies could be a red flag.
• Look at the stock's payout ratio, which tells you how much of the company's income is going toward dividends. A payout ratio that is too high means the company is putting a large percentage of its income into paying dividends.
• Consider the safety of the dividend. Dividend yields over 4% should be carefully scrutinized; those over 10% tread firmly into risky territory.

Examples of dividend stocks and funds

• Walmart Stores Inc. (WMT)
• McDonald's Corporation (MCD)
• Walgreens Boots Alliance Inc. (WBA)
• Pennymac Mortgage Investment Trust (PMT)
• Franklin BSP Realty Trust Inc. (FBRT)
• International Seaways Inc (INSW)
• ETFs: WisdomTree U.S. Dividend Growth ETF (DGRW), Vanguard Dividend Appreciation ETF (VIG)

Value stocks

Long-term growth potential

Investing in value stocks can offer higher returns over the long term. Historically, the stock market has averaged around 10% annual returns since 1926, outpacing other investment options such as bank certificates of deposit, gold, and Treasury bonds. This makes stocks a good hedge against inflation, which has run at about 3.1% annually since 1913.

Market timing vs. time in the market

It is challenging to time the market correctly, and trying to do so often leads to missed opportunities. Instead, staying invested for the long term is crucial for success. The longer an investor holds value stocks, the more likely they are to see positive returns.

• Compounding gains
• Diversification
• Buying opportunities

During market downturns, value stocks may present attractive buying opportunities as stock prices become more affordable. Buying undervalued stocks of high-quality companies with strong fundamentals and predictable cash flows can be a smart strategy.

• Starting small
• Reduced risk

In summary, investing in value stocks can be a smart decision right now due to their long-term growth potential, the importance of time in the market, compounding gains, diversification benefits, buying opportunities during downturns, accessibility for beginners, and reduced volatility compared to growth stocks.

Cyclical growth

Cyclical stocks are those that follow the trends of the economy. They are affected by macroeconomic changes and tend to be more volatile than non-cyclical stocks. Their returns follow the cycles of an economy, rising and falling with the economic cycle.

Cyclical stocks include companies that sell consumer discretionary items that consumers buy more of during a booming economy but spend less on during a recession. They include car manufacturers, airlines, furniture retailers, clothing stores, hotels, and restaurants.

Cyclical stocks can be a good investment, but they are generally considered riskier than non-cyclical stocks. Investors should be careful about their positions in cyclical stocks but shouldn't avoid them entirely. Investors can attempt to time the market by buying shares at a low point in the business cycle and selling them at a high point.

Cyclical stocks tend to produce higher returns during periods of economic strength. They offer greater potential for growth because they tend to outperform the market during these periods. Investors seeking long-term growth with managed volatility tend to balance their portfolios with a mix of cyclical stocks and defensive (non-cyclical) stocks.

Some examples of cyclical stocks include:

• Starbucks
• Nike
• Ford
• Whirlpool
• Netflix

Robo-advisor portfolio

Robo-advisors are automated investment platforms that manage your investments on your behalf, using algorithms to build and manage a portfolio based on your goals and risk tolerance. They are a low-cost, online investing platform that is generally more affordable than traditional investment managers, and they can be a good choice for investors who want to be hands-off with their investments.

• Wealthfront: This robo-advisor has an investment and money management product for any type of investor. It offers low fees, a low required minimum investment of $500, and customisable automated portfolios. It also provides individual stock investing, high-yield cash, superb digital financial planning, automated tax-loss harvesting, and lending capabilities.
• Betterment: Betterment is great for beginners, with a $0 account minimum and $10 to start investing. It offers a wide range of investment choices, including socially responsible and crypto portfolios, and access to human advisors and excellent tax strategy.
• SoFi Automated Investing: SoFi offers fee-free investment management and no-cost 30-minute video meetings with financial advisors. It has a $1 required minimum investment.
• M1 Finance: M1 Finance is best for sophisticated investors as it allows users to access customised expert theme-focused strategy portfolios, as well as choose their own stocks and ETFs. It also offers high-yield cash accounts and low-interest rate borrowing.
• Acorns: Acorns is best for those who struggle to save, with its "round-up" feature that automatically diverts spare change into investment dollars. It has a $3/month fee and a $10 minimum to start investing.
• Ellevest: Ellevest is designed for women investors, with financial management aligned with their specific career and life situations. It offers tailored investment portfolios, low-cost subscription pricing, and discounted financial advisor access.
• ETRADE Core Portfolios: ETRADE is best for mobile, with a user-friendly mobile app that enables account opening and transfers. It provides multiple investment strategies, including core, ESG, and smart beta.
• Merrill Guided Investing: Merrill is best for education, with expansive financial education for beginners through to advanced investors, along with solid robo-advisory services. It offers 24/7 customer service and superior educational resources, calculators, and tools.

Real estate

Overview

There are several factors to consider when deciding whether to invest in real estate, including mortgage rates, supply and demand dynamics, rental income potential, and tax benefits. While investing in real estate can be lucrative, it also carries risks, such as economic instability and rising interest rates. Here's an overview of the current market conditions and some tips for potential investors.

Mortgage Rates

Mortgage rates have been rising since 2023, reaching an average of 6.84% for a 30-year loan as of January 31, 2024. These high rates impact the affordability of properties and can make it challenging for buyers to enter the market. On the other hand, if you can afford a large down payment, you may be able to secure a lower interest rate and reduce your monthly payments.

Supply and Demand Dynamics

The demand for real estate, especially in the multifamily market, remains strong due to the basic need for shelter. Additionally, there is a housing shortage in the US, which further increases demand. However, rising interest rates and economic uncertainties may cause some buyers to hold off on purchasing properties, potentially leading to a more balanced market between buyers and sellers.

Rental Income Potential

Investing in real estate can provide passive income through rental properties. Residential and commercial properties offer opportunities to earn rental income, but it's important to understand the rental market and the expenses involved in maintaining the property. House hacking, or renting out rooms in your own home, is another strategy to consider.

Tax Benefits

Long-Term Investment

Tips for Investors

• Conduct thorough research and due diligence before investing.
• Have a conservative underwriting approach and ample reserves to withstand market fluctuations.
• Consider the right funding options to protect against rising interest rates, such as fixed-rate debt or interest rate caps.
• Diversify your investment portfolio by investing in different real estate markets or types of properties.
• Be aware of the risks, such as economic instability and rising interest rates, and ensure you have adequate reserves.
• Consider investing in real estate investment trusts (REITs) or using online real estate investment platforms for more passive investment options.

Frequently asked questions