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What Can You Do When the Markets Get Volatile?

We spoke with Niladri Mukherjee of the Chief Investment Office for his insights

IT'S HARD NOT TO PANIC whenever the stock market takes a nosedive. In fact, at times of extreme volatility, many investors overreact and bail out of the market altogether, or they engage in what’s called the “ostrich effect” and essentially do nothing. While both reactions are understandable—especially during times of heightened volatility, such as the violent market swings caused by the coronavirus pandemic—neither one is going to help you make progress toward your long-term goals.

With the unprecedented volatility brought on the by the coronavirus, it’s more important than ever to maintain a long-term perspective, notes Niladri Mukherjee, head of CIO Portfolio Strategy, Chief Investment Office, Merrill and Bank of America Private Bank. It’s also worth keeping in mind that volatility can open up new growth opportunities as some investments become more reasonably priced, he says. Below, Mukherjee offers useful guidance on how investors can maintain perspective and stay focused on their long-term goals.

Q. Whenever there's extreme market volatility, it tends to get a great deal of media attention. What's your take on the way that news reporting affects investors' reactions?

A. At times like these, you hear a lot of people saying, “Put down your paper and turn off the TV.” I think that kind of advice misses the point. What's happening in the markets is legitimate news, and it needs to be reported. But the media isn't providing investment advice. It’s not accountable for your progress toward your financial goals. You and your financial advisor are. And you should look at these moments as opportunities to start a discussion with your advisor about what may make sense for you to do now.

Niladri Mukherjee Headshot“One thing you can do is make sure that your portfolio is sufficiently diversified. A broad mix of investments can help you weather volatility.”— Niladri Mukherjee, head of CIO Portfolio Strategy, Chief Investment Office, Merrill and Bank of America Private Bank

Q. What do you tell people who ask you how they can respond when the markets drop?

A. I like to point out that while markets are known for their unpredictability over short periods of time, if you look back over the longer term, the trend for the equity market is still up. Therefore being patient, taking a measured response to volatility and thinking through any steps before you take them is important.

Volatility tends to make investors feel uncertain and fearful about what could happen next, and that often prompts them to make rash decisions that aren’t ultimately in their best interests. The best thing to do when the markets get turbulent is to take a step back and ask yourself what your purpose for investing was in the first place. How can you thoughtfully adjust your investment strategy to stay on track toward achieving your goals?

You also should keep in mind that market downturns—while challenging when they’re happening—almost always open up new opportunities. These could be in areas of the market that were perhaps overlooked or overvalued before the downturn began. Your financial advisor can help you analyze specific risks and identify new opportunities. If there’s any silver lining to volatility, it’s that it can allow you to make adjustments to your portfolio that could be beneficial over a longer period of time. But whatever changes you make, be sure you're basing them on your needs, not on the market's ups and downs.

Q. Are there any actions investors can take now to help them gain a greater sense of control over their investments, regardless of what the markets are doing?

A. One thing you can do is make sure that your portfolio is sufficiently diversified. Having a broad mix of investments—stocks and bonds—across sectors and asset classes can help you weather volatility. Ask your advisor whether you may need to make any adjustments to improve your diversification.

Another thing that can help is having a well-defined vision of your goals laid down on paper. If you haven't written down your goals, now is a great time to do it. It's a document you can bring to your family, friends or a trusted advisor to get their point of view. Talking it over with others can help you get to a calmer, more thoughtful mindset, and it will help you avoid making decisions out of fear or take actions that could ultimately be counterproductive.

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Information is as of 02/22/2021

Important Disclosures

Opinions are as of the date of this article and are subject to change.

Investing involves risk including possible loss of principal. Past performance is no guarantee of future results.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).

Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments.

Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yields and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa.


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