Monday, March 25, 2019

Our CIO Comments on Market Volatility

If the recent U.S. stock market gyrations have your head spinning, you’re not alone. With major indexes swinging up and down daily, it’s easy to understand why—whether you are overseeing a defined contribution (DC) plan, a defined benefit (DB) plan, or nonprofit investors—you might be feeling a bit seasick.

Three thoughts that might help:
  • Maintain perspective. You’re not imagining things. The markets have been more volatile lately. But you may be surprised to learn that the increased volatility brings us closer to the historical norm. Investors may have anchored their expectations to the lower than normal volatility we experienced back in 2017.

Don’t let turbulence distract you: Keep your focus on the longer term

Notes: Intraday volatility is calculated as daily range of trading prices [(high-low)/opening price] for the S&P 500 Index. Sources: Vanguard calculations, using data from Bloomberg.
  • Don’t do anything rash. If you’re an institution that’s been invested for years in a broad, diversified mix of stocks and bonds, your portfolio likely has appreciated. The same goes for retirement plan participants. What all investors should keep in mind is the risk of timing an investment decision poorly is generally higher than the risk of changing nothing at all in your portfolio. Remember, it’s also a decision to do nothing.
  • Check your asset allocation. If market movements have meaningfully altered the ratio of stocks, bonds, and other asset classes in your investment plan, it may make sense to do some rebalancing.
If all this sounds rather familiar and you’re not especially concerned about the market’s fluctuations, I say: Thanks for reading. If you’re growing increasingly concerned about volatility, Vanguard can help institutions put it into perspective. We can leverage our deep expertise to provide you with guidance and ongoing support. Please don’t hesitate to reach out and consult with your Vanguard team.

  • All investing is subject to risk, including possible loss of principal.
  • Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Gregory Davis, CFA, is Vanguard’s chief investment officer, responsible for the oversight of approximately $4 trillion managed by Vanguard Fixed Income, Equity Index, and Quantitative Equity Groups. The funds managed by these groups include active and index stock and bond funds, money market funds, and stable value funds. Previously, Mr. Davis was principal and global head of Vanguard Fixed Income Group, responsible for its portfolio management, strategy, credit research, trading, and planning functions. He has also served as the company’s Asia-Pacific chief investment officer and a director of Vanguard Investments Australia. Mr. Davis is a member of the Treasury Borrowing Advisory Committee of the U.S. Department of the Treasury.

Mr. Davis has more than 19 years of investment management experience. Before joining Vanguard in 1999, he worked at Merrill Lynch as an associate in global debt markets.

Mr. Davis earned a B.S. in insurance from The Pennsylvania State University and an M.B.A. in finance from The Wharton School of the University of Pennsylvania. He is a CFA® charterholder and a member of the CFA Society of Philadelphia.