Understanding the source of turbulence can help you prepare for it, whether it is a world event that has taken markets by surprise or a broader economic downturn. Here, we lay it all out—from the risks you might want to look out for to which investment strategies to explore. Read on to better prepare for market turbulence and potentially benefit from it.
STRATEGIES FOR NAVIGATING TURBULENT MARKETS
Market turbulence can arrive unexpectedly and while it can be a nerve-wracking experience, it's often short-lived and can be a great source of opportunity for investors.
MARKET INSIGHTS
NAVIGATING MARKET VOLATILITY: INSIGHTS FOR INVESTORS
Discover factors behind recent stock market volatility, how to manage risk during turbulent times, and how recent economic data may impact the Fed’s outlook.
NAVIGATE TODAY’S MARKET
DON’T LET A FEAR OF VOLATILITY HURT PERFORMANCE
The fight or flight instinct has helped our ancestors survive, but when it comes to investing, it’s often a losing strategy. When volatility strikes, panicked selling to avoid further losses could result in selling investments for less than you purchased them for. What’s worse, you run the risk of missing out on a rebound that may be right around the corner.
Missing these rebounds, or top-performing days, could harm long-term performance. When you look at an investment of $10K in stocks over a 20-year period, an investor who stayed invested would have made 58% more than one who missed just 5 top-performing days.
Missing top performing days can hurt your returns
Source: BlackRock, Bloomberg as of 12/31/2023. Stocks are represented by the S&P 500 Index, an unmanaged index that is generally considered representative of the U.S. stock market. Past performance does not guarantee future results. It is not possible to invest directly in an index.
Image description: Bar chart showing the potential decrease in investment returns (over a 25-day period) when top performing days are missed.
If the ups and downs of your investment returns are making you queasy, review the allocation between stocks and bonds. Bonds can help counter balance the peaks and troughs of stock prices. Learn more about portfolio construction with our portfolio builder.
CAN'T STOMACH THE VOLATILITY?
If market volatility leaves you wanting to press the eject button, consider ETFs designed to protect on the downside so you can stay invested for the long run.
MORE INSIGHTS ON MANAGING VOLATILITY
INVESTING IN A SHRINKING ECONOMY
Recessions can trigger a significant decline in stocks and a barrage of negative news stories that make it easy to lose perspective. Thankfully, the average recession only lasts around a year and investors who wait it out may be handsomely rewarded for their patience.1 Since 1926, the average performance of U.S. stocks in the year following a recession was nearly 25%. Investors who cannot wait for a bounce back, could consider three strategies to help find resilience against economic headwinds.
Average performance before, during and after a recession since 1929
Source: Morningstar as of 12/31/2023. Stock market represented by the S&P 500 Index from 3/4/57 to 12/31/2023 and IA SSBI U.S. Large Cap TR Index from 1/1/26 to 3/4/57. Past performance does not guarantee future results.
Image description: Bar chart showing the average performance of U.S. stocks before, during and after a recession over a three-year period.
STRATEGIES FOR STAYING INVESTED
Focus on quality
Stocks: Companies with stable earnings, relatively low debt, and strong cash flows are associated with a characteristic referred to as “quality” and can all act as a buffer against losses in shrinking economies. Gain access to a basket of companies with these characteristics with the iShares MSCI USA Quality Factor ETF (QUAL).
Bonds: Investment grade bonds are loans by high quality issuers which have been deemed by independent ratings agencies to be less likely to miss an interest payment or be unable to repay the initial loan. Seek to track the entire U.S. investment grade bond market with the iShares Core U.S. Aggregate Bond ETF (AGG).
Retreat to lower risk securities
If the recession risk is too high to handle, consider moving into lower risk securities like U.S. Treasuries, where interest payments and initial loan values are guaranteed by the United States government. The iShares 7-10 Year Treasury Bond ETF (IEF) provides exposure to a U.S. Treasury bonds with remaining maturities between 7-10 years.2
READ OUR INSIGHTS
TRANSFORM INFLATION HEADWINDS TO INVESTMENT TAILWINDS
Inflation deteriorates purchasing power, increasing the likelihood of your investments falling short. While inflation may be outside of your control, there are investments that can help manage the impact of inflation and help keep you on track.
Seek out inflation-linked investments
Treasury Inflation-Protected Securities (TIPS) are U.S. government bonds with a face value that rises and falls with inflation, protecting investors from the risk of higher-than-expected inflation. Access a whole basket of TIPS in just one trade with iShares 0-5 Year TIPS Bond ETF (STIP).
Focus on real assets
Physical assets like real estate and commodities can help protect investors from rising inflation and diversify portfolios. The costs for food, energy, and housing account for a large part of the Consumer Price Index (CPI).1 Investing in the assets driving inflation can help your returns keep pace with it.
- Equity Real estate investment trusts (REITs) are companies that own or manage large properties which would otherwise be inaccessible to most individuals. Get access to a diversified portfolio of REITs with iShares Core U.S. REIT ETF (USRT).
- Access energy, agriculture, livestock, and other sectors through just one ETF with iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT).
Limit cash drag
When inflation is high, excess cash sitting in your bank account isn't doing you any favors. Short term bonds can help access growth while keeping without committing to a long-term investment.
- The iShares Short Treasury Bond ETF (SHV) can help put your cash to work while limiting the impact changes in interest rates.
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