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The volatility that has plagued markets for weeks has prompted some investors to ask: “Is this the bottom?”
But waiting for market lows can be elusive.
“There is no ‘bottom,'” said Chris Hyzy, chief investment officer at Merrill Lynch and Bank of America Private Bank. “We’re in the process of bottoming out.”
This may be resolved over time, Hyzy added.
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Additionally, two catalysts may help improve investor sentiment.
The first is inflation peaking. “We expect this to happen in the next few months,” Hyzy said, another will be strong earnings heading into 2023.
“If these two things come together, investor psychology will improve over the next 12 to 18 months,” Hyzy said.
inflation data Data released on Friday suggested that price gains may be slowing, which helped push the stock higher noon and positioning Dow Jones Industrial Average It could break an eight-week losing streak.
One reason the volatility has worried market analysts is the higher-than-normal churn in both stocks and bonds. Bond and stock volatility haven’t been so closely correlated since 1994, Hyzy noted.
“This is new to all kinds of new investors, and it’s a story that more experienced investors don’t want to see anymore,” Hyzy said.
For investors and advisors, the current moment presents an opportunity to revisit goals.
“If your time horizon is at least three years from now … the bottoming process that we expect to happen in the next few months is an opportunity for summer rebalancing,” Hyzy said.
Investors with shorter time horizons should also revisit their goals.
“You have to make sure you review your risk profile and get it right where you need it,” Hyzy said.
A balanced investment process should also include broad diversification across asset classes, as well as alignment of goals and time horizons, said Keith Glenfield, head of private banking investment solutions at Merrill Lynch and Bank of America.
Higher market volatility also provides advisors and their clients with the opportunity to take advantage of tax loss gains, where certain securities are sold at a loss to offset capital gains taxes on other securities sold.
The company provides these services through a suite of tax management services it offered to the firm’s advisers last summer.
According to Glenfield, advisors have the discretion and power to act on their behalf once clients choose to enroll in services provided through the company’s trust plan.
These clients’ advisors can then look for opportunities when tax losses arise, rather than waiting until the end of the year.
A woman takes a selfie with a “Charging Bull” statue in New York on February 17, 2021
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“If you do this at the end of the year, you don’t know where your portfolio or specific positions will be by then,” Grunfeld said.
“This allows you to help take advantage of peaks and valleys throughout the year,” he said.
other functions Includes tax-efficient rebalancing, quarterly loss collection, and investment strategies that emphasize tax approaches.
According to Glenfield, activity levels for new products are increasing every week.
“We’re pleased with the response from our customers,” he said.