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Investment Basics, Risks, and Market Volatility

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SunTrust has partnered with Vanguard Financial Advisor Services to bring awareness of issues dominating the financial industry from a global perspective. Sun Trust’s strategic partnership with world-class advisors such as Vanguard allows us to bring the best combination of local service and international expertise to the benefit of our clients. This issue addresses investment risks and volatility, which are important topics to understand when confronted with recent market fluctuations.

The following article is excerpted from a Vanguard client education brochure, “Learn About Investment Basics.”

Investment Basics: Risks and Market Volatility

It pays to have an understanding of fundamental investment concepts. Knowledgeable investors are better prepared when shopping for investments and investment services. They’re also more inclined to stick with their investment plans for the long term—a key to building wealth.

It’s this simple—you invest to create wealth. Investing is different from saving. Saving involves placing your money in an account that is relatively safe and pays a fixed, though typically low, rate of interest. Investing, on the other hand, offers the opportunity to earn higher returns in exchange for taking some reasonable risks.

Prudent investing is the key. Most people understand that investing involves taking some risks with their money. But how much risk is reasonable? There’s no simple answer to that question. For most investors, a reasonable level of risk lies somewhere between the low-risk approach of saving and the high-risk approach of speculating.

Unlike saving (a low-risk approach designed to protect your money with little concern for its growth), or speculating (a high-risk attempt to make a lot of money quickly), investing is a thoughtful, prudent approach to money management. Investing not only involves taking the risk necessary to achieve higher long-term returns, but also requires discipline and planning.

Investing involves establishing clear financial goals, knowing the time frame needed to achieve those goals, thinking carefully about your ability to withstand market volatility, and selecting investments that match your needs.

Your financial advisor can help to guide you. Your financial advisor will develop an investment plan geared to your particular goals, tolerance for risk, and personal financial situation. The plan will help you determine what kinds of investments to include in your portfolio.

With a plan in place, your financial advisor can monitor your portfolio to help ensure that you remain on track to reach your goals.

Market cycles play out against a backdrop of economic, social, and political events, and many commentators can’t resist trying to assign causes to every hiccup in the markets. But it’s often impossible to explain market activities until long after the dust has settled. That’s why it’s a good idea to take day-to-day market events in stride and stay focused on your long-term objectives.

If you read the business section of the newspaper or watch financial television shows, you’ll hear talk of bull and bear markets, market corrections, and the like. As an investor, you should be aware of what these terms mean, but you should also know that it may not make sense to think about changing your investment approach based on today’s headlines.

The markets are unpredictable. The chart below shows just how erratic the stock market can be. From December 31, 1986, through December 31, 2008, the monthly performance of the Standard &Poor’s 500 Index ranged from a high of 13.47% (in January 1987) to a low of –21.54% (in October 1987). However, despite the stock market’s ups and downs over that 22-year period (including bull and bear markets), the S&P 500® Index averaged an 8.63% annual return, a solid performance for investors focused on the long-term.

Keep in mind; while past performance can be a factor in choosing an investment, it is not a guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Market Volatility

Tips for dealing with market volatility:

One of the most common mistakes investors make during bull markets is to move money into their “winning” investments in hopes of hitting it big. Conversely, during bear markets, investors sometimes lose patience and sell the investments that are declining in value. Unfortunately, investors seldom get this timing right and react too late to be able to capitalize on gains or avoid major losses.

Here are a few tips your financial advisor will agree may help you negotiate the good times and the bad:

  • Maintain your balance. Hold on to the mix of stocks, bonds, and cash investments that your financial advisor has helped you tailor to your objectives, time horizon, risk tolerance, and personal financial situation.
  • Continue investing regularly. Keep making regular contributions to your employer-sponsored retirement plan, IRA, and other investments.
  • Make changes gradually. If you need to make adjustments to your portfolio, work with your financial advisor to make them gradually.
  • Tune out the noise. These days, investors are bombarded by an amazing amount of financial news and information. Try to ignore all the noise and keep your focus on your long-term goals.

Investing is not without risks. Whether you’re investing in stocks, bonds, or cash investments, it’s important to understand the risks involved. The chart below outlines some common risks associated with investing in the three major asset classes.

Be sure to consult with your financial advisor if you have questions about investment risks.

Market Volatility

It is important to stay in touch with your personal financial advisor throughout the year. In volatile times like we are currently experiencing, it is even more critical. This is the time to work closely with your financial advisor to answer your questions. Allow your financial advisor to help you succeed by staying focused on your long-term goals and objectives.

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

SunTrust Private Wealth Management is a marketing name used by SunTrust Banks, Inc. and the following affiliates: Banking and trust products and services are provided by SunTrust Bank. Securities, insurance (including annuities and certain life insurance products) and other investment products and services are offered by SunTrust Investment Services, Inc., a SEC registered broker/dealer and a member of the FINRA and SIPC. Other insurance products and services are offered by SunTrust Insurance Services, Inc., a licensed insurance agency. Investment advisory products registered with the SEC.

SunTrust Bank and its affiliates and the directors, officers, employees and agents of SunTrust Bank and its affiliates (collectively, “SunTrust”) are not permitted to give legal or tax advice.  While SunTrust can assist clients in the areas of estate and financial planning, only an attorney can draft legal documents, provide legal services and give legal advice.  Clients of SunTrust should consult with their legal and tax advisors prior to entering into any financial transaction or estate plan.  Because it cannot provide legal services or give legal advice, SunTrust’s services or advice relating to “estate planning” or “wealth transfer planning” are limited to (i) financial planning, multi-generational wealth planning, investment strategy, (ii) management of trust assets, investment management and trust administration, and (iii) working with the client’s legal and tax advisors in the implementation of an estate plan.

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