Options for managing risk in volatile times

Is market volatility on your mind? There are investment options that can help you manage risk when times get tough. 

Low-volatility funds 

What are they? 

Think of these funds as portfolios made up of less volatile securities in a given asset class. For example, low-volatility stocks are shares in companies that are historically more stable and have more steady cash flow than the market as a whole. One example would be utility companies.

Low-volatility funds aim to provide better risk-adjusted returns over time than similar high-volatility stocks. Think of risk-adjusted returns as the amount of risk involved in creating a return. 

Why might they be good in times of market volatility? 

Low-volatility funds tend to underperform the market on the way up and outperform it on the way down. This means when the market is rising, they still provide you with returns, but these returns are lower than the market’s gains as a whole. When the market dips, these funds also experience losses, but they may have smaller losses than the market as a whole. Overall, they typically offer less pain and less gain related to specific market events. By being less reactive to specific events, they tend to give you better risk-adjusted returns in the long-term. 

Dividend-paying stock funds 

What are they? 

These funds mainly invest in companies that pay dividends – the profits companies share with their stockholders. Dividend-paying companies are typically well established and financially healthy, which can be a sign of strength and stability. 

Why might they be good in times of market volatility? 

Even when markets are volatile, companies generally keep paying dividends. Dividends provide you a bit of a cushion. Although the price of the underlying stock may fall when markets take a dip, you could still earn a steady dividend income. 

Income-focused balanced funds 

What are they? 

These funds diversify among two or more asset classes to give you a steady stream of income and long-term growth with lower risk and volatility. They typically invest in bonds, which are lower-risk, fixed-income securities, and companies that pay dividends. The amount these funds can invest into a given asset class usually has to stay between a set minimum and maximum value. 

Why might they be good in times of market volatility? 

Income-focused balanced funds focus on lower-risk investments and are designed to provide a smoother investing experience. This could help a lot when the market is volatile. They’re a good solution if you want the potential for more returns than a bond fund but less ups and downs than you’d see with an equity fund. 

Managed solutions 

What are they? 

Managed solutions are portfolios built with a mix of underlying funds, each of which is professionally managed. This category has become increasingly popular across the globe over the last decade as investors hope to simplify and diversify their investments within a single solution.

Bringing together this mix of underlying funds uses strategic asset allocation. This means behind the scenes, a professional portfolio manager decides how to distribute your investment across different asset classes (like fixed income or equities), sectors and regions. They allocate your investment based on what’s happening in the market, while allowing you to stay within your risk tolerance. When appropriate, the portfolio manager may use their expertise to make small strategic changes that have the potential to grow your returns or lower your risk. 

Why might they be good in times of market volatility? 

Managed solutions can help lessen any biases or emotional reactions you have when markets change. With these investments, you can work with an advisor to buy a fund or funds specific to your needs. From there, the fund’s portfolio management team works to make sure it fits your risk tolerance and diversification expectations. 

Segregated funds 

What are they? 

Segregated funds, give you the opportunity to grow your wealth in the financial markets, while offering insurance protection to guarantee the money you invest. Each fund is a professionally managed pool of money across several different investments. 

Why might they be good in times of market volatility? 

Because the principal investment is guaranteed at maturity, segregated funds can be a particularly good solution when you’re looking to protect a portion of your portfolio during times of market volatility. 

What’s next? 

I can help you take a well-informed and holistic approach to investing to help you manage risk when markets are volatile. These different types of funds and solutions can not only help reduce risk in your portfolio, they can help you even when the markets aren’t volatile. I can help you develop a plan that combines strategies and funds to help you invest with confidence and achieve your long-term goals, no matter the stage of the market cycle.

Let’s chat.