Three Key Ways to Navigate a Volatile Stock Market Using Automation

Investing during a Volatile Market

This spring has been a roller coaster for investors due to volatility and an unexpected pandemic. So, how do investors weather through in an uncertain and volatile stock market? We summarize three reasons why using “smart” automated technology can help you navigate the constant fluctuations of a volatile stock market.

Expert Advice

Registered Investment Advisors (RIA), wealth managers and family offices are always looking for ways to provide their clients with better investment strategies, particularly in a volatile stock market. For the past few years, the markets had been doing well and many investors were having great results. However, in March 2020, many portfolios plummeted and volatility became the norm. As always, in times like these, well-diversified tactical portfolios are crucial.

Many RIAs use their proprietary models to manage their clients’ assets. But as we all know, assets are diverse and specific expertise in investment strategies are critical to making sound recommendations. An investment professional can be great at income-generating strategies, while another is great at crafting growth-investment strategies. For the investor, the best investment strategy would be a combination of best-in-class investment strategies crafted by experts in their respective areas of competencies.  Fortunately, there are many expert asset managers who provide best-in-class models for investors.  Combining different best-in-class models from one or several expert asset managers is critical to having a diversified investment portfolio.

Strategic Discipline

Navigating volatile stock markets can be daunting. And, many investors overreact to market fluctuations, often falling prey to panic. Investors without a set investment strategy might trade their assets at the wrong time because they are guided by emotion. That’s why having a sound investment strategy and being disciplined are critical.

As such, sticking to a set investment strategy helps investors make the appropriate decisions at the right time. RIAs and some technology tools can help investors use investment strategies that are consistent with the financial goals of investors.  This approach may have helped during the market downturn this spring.

Appropriate Asset Allocation

A set investment strategy is goal-oriented, so it needs to be carefully monitored so that the set goals are achieved.  Although volatility will affect your strategy, rebalancing will help you keep it on track. Many of those who had a strategic approach were able to rebalance their portfolios before the spring market crash. As a result, well-diversified investors suffered limited losses.

Models from asset managers and a disciplined approach crafted by RIAs helped investors realize gains and minimize losses. Investors who saw growth in stocks throughout the market rally most likely sold equities and bought fixed income to bring their portfolios back to their target asset allocation. For many, the result was selling at the right time before the market crash.

A volatile stock market brings additional risk, that will require RIAs to monitor more frequently potential changes in allocation.

So, what really does all this mean for “smart” automated technology?

All of the above sounds great, but when does one have time to do all of this?  For the investor, balancing a job, family life and investing is no easy task. For RIAs, dealing with multiple strategies from different clients can be time-consuming and prone to error.  Therefore, using “smart” technology to automate expert advice, strategic discipline, dynamic rebalancing and trading is a solution to navigating a volatile stock market.

Keep in mind, not all technology is equal.  Technology has advanced substantially in the last few years and disrupting technologies such as IoT, machine learning and AI are changing entire industries. RIAs and investors who are using these types of technologies will have an edge when navigating a volatile stock market.

Whether investors are managing their own portfolios or using a RIA, technology is becoming a critical component for success. Technology can help RIAs make sure that their clients’ portfolios are on track and up-to-date and can help their clients with the following critical aspects of managing their portfolios:

  • Rebalancing
  • On-time trading
  • Dollar cost averaging
  • Tax harvesting

In addition to these considerations, technology can also help RIAs assess in a more efficient manner best-in-class investment strategies from professional asset managers. 

It’s time to explore how “smart” automated technology can help you better manage your portfolios and navigate uncertain and volatile markets.