Don’t Let Volatility Blind You

With recent intense market volatility, investors cannot help but freak out a bit.

But relax, says Rocco Carriero, an Ameriprise Financial advisor.

Instead of being consumed by the fear volatility brings, investors would be better served by focusing on strategy and asset allocation. "If investors have a long-term, comprehensive strategy, they should expect to deal with market volatility. That comes with strategy," Carriero tells me in a video interview.

The job of advisors is to be the calm during the storm. "Markets have always been volatile, and they'll continue to be, but the job of an advisor is to help their clients relax and think long-term," Carriero says.

A recent article from Financial Planning’s May issue delves into this issue of volatility, citing evidence from global consulting firm Wilshire Associates. The firm’s research discovered that market swings in the U.S. of more than 30% aren't much more common in the past 10 years than in the previous 23. “And on a monthly basis…market swings of more than 10% actually appear to be less frequent,” writer Allan Roth says.

It would be silly to assume investors will stick to their game plan and not worry about market fluctuations. We’re all human, and when your life savings is at stake, it’s hard not to have an emotional reaction. “If you can't convince clients that there is little evidence of increased volatility, you might just consider giving them more conservative asset allocations - particularly lately, with U.S. stocks at or near an all-time high,” Roth writes. “With less money in equities, clients may be less likely to panic during the next market plunge.”

Read more:

• Video: Don't Let Volatility Blind You
• Are Stocks Really More Volatile Now?
• Guiding Clients in a Volatile World