Volatility and Fear

Recent Volatility caused by Fear and Uncertainty

Recent volatility in the markets has shown us that there is still Fear and Uncertainty when it comes to where investors are seeking shelter.

The roller-coaster ride was unnerving for investors who have already been through the internet bubble bursting in 2000, over 50% collapse in the S&P 500 Index from October 2007 to March 2009 and wild rides in the DOW in 2008.

Is recent history repeating itself?  We think so, especially with falling home prices, government reported unemployment over 9%, and almost a complete lack of trust in our government to bring down spending.

Investors are either going straight to cash or into short-term treasuries as evidenced by the dip below a 2.00% yield on the 10 Year Treasury Bond on one of those recent volatile days.  Some investors we know have just called it quits on the markets right now as they just cannot stomach the volatility, trust the equity markets, or are just plain turned off by the miniscule returns in the Treasury Markets.

However there are some investors who are committed to equities and understand that volatility is part of the equation. We totally understand what these investors are going through.  We are trying to encourage them by letting them know that there are some alternative asset classes that cannot only preserve capital and provide an inflation hedge, but also can provide income well above the returns they are getting in the bond markets.

Many financial advisors recommend that 10% to 20% of a portfolio should be dedicated to alternative assets that are not correlated to the stock market.  We agree with this recommendation and it’s through this type of investing that allows diversification and leads to preservation of wealth, which is the number one concern of most folks we talk to today