Omicron Market Selloff: Why It’s A Good Idea To Focus On Low-Risk Assets For Your Retirement Plan In A Time Of Market Volatility

Sell, buy, or get out of the way?

That's the question investors faced as yet another wave of COVID news roiled world markets in mid-December. The Omicron variant had just raised fears of a fresh fear of global lockdowns. As a result, investors got jittery. The volatility in both U.S. and European markets sent investors diving for cover.

If you've watched the markets for a while, you know this scenario isn't new. The Omicron market selloff is just the latest in a long series of market dips and swells based on world news and the emotions it generates.

It’s no surprise, People act on their feelings. 

Investors are people, and their emotions determine many of their choices. Fear often makes their stomachs (and the market) drop while excitement causes their blood pressure (and the market) to surge.

Investing is like riding a train — or a roller coaster. You choose an optimal route, sit in your seat, buckle up, and keep your hands and feet inside the vehicle at all times. You don't jump off halfway through. 

Low-key actions often produce the most valuable returns.

If you're investing in riskier assets such as single stocks, hedge funds, crypto, or venture capital, you might want to rethink your strategy. Stable, long-term assets are often a better fit for most people’s retirement portfolios than focusing on highly volatile stocks and other relatively high-risk assets.

How to Protect Your Portfolio from Increased Market Volatility

Choose a simple investment strategy. It doesn’t have to be complicated. Investing 10-15% of your household income into your employer retirement account can make a great goal. The best retirement vehicles for many people include options such as a 401(k), 403(b), traditional IRA, and a Thrift Savings Plan. You can also opt for a tax-free retirement account such as a Roth IRA or a Roth 401(k). 

Whatever investment strategy you depend on, don't abandon your plan. It's tempting to put money in the market when the future looks rosy and then pull out your assets when the weather turns sour. That's not usually a winning strategy.

Invest in a disciplined, timely way. Consider mutual funds or exchange traded funds (ETFs) that spread your investments across many companies. That way, you diversify your portfolio instead of risking everything on a single stock or other instrument.

Low-risk assets and smart investing can help you protect your income and your family's future.

What are Low-Risk Assets?

Low-risk assets can mean little to no risk, such as your savings accounts, certificates of deposit (CDs), or money market funds. Unfortunately, many of these investments are not only low risk, they're also low reward. They offer guaranteed benefits but poor rates of return.

These kinds of low-risk assets may not serve you well when you’re trying to build wealth.

At Cooke Wealth Management, we don't think of low-risk as just an investment category. We think of it as a strategy. After all, why accept more risk than you might otherwise need to? We work with clients to set up investment plans that preservations, and growth.

Can Low-Risk Investments Outperform High-Risk Investments?

Yes, they can. High risk doesn't always mean high return. 
In fact, historically stocks that show less volatility month over month also demonstrate greater average returns than their riskier peers over time.

That's because volatile stocks often fall as dramatically as they rise. Every time a stock retreats, it has to make up its losses before it can accrue gains. Thus, stocks that tend to sharply rise and fall usually lose ground steadily.

Consider the tale of Enron.

In September of 2000, Enron shares were trading at $90.72. By December of 2001, those same shares were going for $0.26 each. 

Here's what happened: Enron's reported revenue wildly exceeded that of Chevron, Texaco, Dell, or Microsoft, causing its stock price to soar. Unfortunately, that revenue had been wildly inflated. The whole house of cards crashed, leaving single stock investors with pennies where their retirement had been.

Don't be fooled by flash and glitz. Don't be tricked by variants and other global crises.

If you had invested $10,000 in a boring S&P index fund in 1999 and never touched it, you'd have had $29,845 in 2018 — dips, crashes, recessions, and all.

Why Choose a Diversified, Long-Term Approach to Investing?

Most of us invest so we can pay for our kids' college, fund our retirements, and accomplish other meaningful goals. We don't need any kind of get-rich-quick scheme. We often need a diversified, long-term approach to investing.

Let's break that down:

Diversified means you put money in assets across the market and maybe some not tied to the market at all. In other words, you don’t put all your eggs in one basket. And You don't sink all your wealth into a single stock or asset, no matter how well it's performing right now. 

Long-term approach means we are investing money today that we will not touch until several years or even decades from now. When you retire you won’t take all your money out at once. In fact, Americans are living longer lives. Many of us today could live well into our 90s or even past the century mark. Invest with your 100th birthday in mind.

Sensible Retirement Planning

Plan and invest sensibly now so you can live freely and give generously in the future.

A sensible retirement is not about clutching your money so you can have a little left over for later. It's about making a budget, spending less than you earn, and saving and investing in your future. It's about .making smart choices with your money, including your investments. And it's about meeting regularly with your retirement professional. - ok, we threw that last one in there, but it certainly can go a long way to give you the confidence to live out your days in retirement.

If you are not working with a financial planner, you might want to start considering it. It can potentially help you to secure your future financial health. 

You can Google "retirement planning near me" for a list of qualified retirement professionals in your area. Or if you live in the Orange County region, contact us at Cooke Wealth Management to talk about your investment strategy. 

Omicron or no, putting your money into diversified, low-risk assets can be a smart retirement move. Let us help you do it.