Investors Avoiding Knee-jerk Reactions despite Stock Market Volatility The volatility in the stock market shows investors have come a long way in making strategic and balanced decisions.
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Familiarizing yourself with the stock market and investing involves studying the moves made by investors and understanding the path or approach they follow. Sometimes you can notice a distinct pattern. Analysts and stock market experts could provide even more insight on these. The current volatility in the stock market is something worth observing and studying. There have been various factors rocking the markets – trade war fears and tensions are primary among them. There have also been geopolitical issues involved. In spite of all these, an experienced fund strategist believes that investors have been able to make rational decisions and not toss around with emotions interfering with their decision making, though that’s what usually happens in times of volatility. Investors Taking a Measured Approach Changes to the stock market this year don’t seem to indicate investors are dramatically shifting in any direction. This also hasn’t happened in recent years as the market experiences an extended bull run. Fran Kinniry notes that there have been very balanced cash flows, and that such a balance is quite unusual in other markets where you have strong bull momentum. Investors in the US markets seem to be behaving as if they have financial advisors guiding them. In other words, on their own, they seem to have the intelligence of financial advisors. Other bull markets did witness investors running behind returns and getting piled near the top. Kinniry reckons that more passive investment products are what drive investors now. Rather than following individual stocks, they follow asset allocations. That explains why investors have not been reacting to stock
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movements happening every day. They have also been rebalancing whenever they found their portfolio getting out of shape. This wasn’t the situation 10 to 15 years back, Kinniry reminds. Back then, mutual funds were selected by investors on the basis of their past performance. Stabilizing Investment Strategies There are sophisticated investment strategies at play that function as stabilizers to other investors likelier to chase returns. There was a push made by financial advisors for making their value proposition regarding asset allocation, rebalancing as well as behavioral coaching. There has also been an increase in the number of target date funds. All these are considered factors for investors not reacting as they used to in the past. While this is something positive, Kinniry says we still need to see if this new characteristic of investors holds in the event of a giant sell-off. The stock market correction in mid-February is an example. Stocks rebounded, despite the panic and selling. Major investment firms reported customers acting in a very calm and measured manner at the time of the plummet. The downturn and sell-off were even used by these customers as buying opportunities. More Target-date Retirement Funds in 401 (k) Plans Kinniry believes that 401 (k) plans having more target-date retirement funds have brought about a positive influence on the behavior of investors. Around 15 years back, employees chose retirement funds on the basis of their ten-year or five-year performance. But there was no guarantee that their performances would be repeated.
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Target-date funds, however, remove much of the guesswork involved. That makes the current environment more favorable for retirement investors. Targetdate funds automatically get conservative as the investor gets closer to retirement. They help these investors to attain better returns. Financial Advisors Adopting Index Funds Another factor that makes investing more rational and data-based is that index funds have been adopted by financial advisors, and that takes away a great deal of emotion from the investing process and decision making. For investors who like to make decisions themselves without consulting financial advisors, they have gravitated to a one balance fund which helps keep the emotions at check. Kinniry also observes that while investors chasing returns were lookedupon with a critical perspectivein 2007 and the late 1990s, that attitude has changed now. Changing trends like these are something to be expected. In fact, change is the only constant in the stock market. With expert analysis and advanced trading platforms, you can make a giant leap in trading successfully according to the times.
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