How We Handle Stock Market Volatility

The impact of being out of the stock market during recovery days chart created by J.P.Morgan Asset Management. Andrews Advisory Associates, LLC is not affiliated with J.P.Morgan Asset Management.  Chart used with permission © 2025

We design clients’ portfolios with built-in protection against the day-to-day swings of the stock market, using diversification, asset allocation and other time-tested strategies.

Short-term volatility is an expected part of investing in stocks.  During each client review meeting, we discuss our clients’ cash needs, investment time horizon, and tolerance for investment volatility – before downturns inevitably happen.

For a 100% stock portfolio, a temporary loss of 25% in a three-month period is considered normal.  Over any 15-year time period going back to 1929, a diversified stock portfolio has never seen losses – only gains.

Young people who are building their future wealth are in the “accumulation” phase of life.  If they invest in a retirement plan every paycheck, they can buy more shares with the same money when the market is down. It’s like they are stocking up on shares while the market is “on sale.”  They do not plan to touch their retirement plan balances for decades and have plenty of time to benefit from long-term growth.  They may feel comfortable investing in a 100% stock portfolio, or “Aggressive.”

Older individuals who are already retired may be drawing an income stream to replace their jobs.  After all, that is the whole point of saving for retirement!  They do not want their paycheck to be slashed just because the stock market goes down.

They may choose to invest in the “Balanced” portfolio, which consists of 60% stocks; 40% bonds and cash.  We hold one to two years’ worth of their income needs in cash or in a high-interest money market.  The next two to 10 years’ worth of draw is held in fixed income, or bonds.  Stocks, or equities, are generally used for the portion of the portfolio that is to be held for 10+ years – for retirement or for a legacy.

We replenish the income reservoir with periodic rebalancing. Having cash and bonds in a balanced portfolio helps us to avoid selling stocks in a down market.  The stock portion of the account is intended to be held for the long term.

This is how we protect our clients against day-to-day stock market volatility.  They need to keep us in the loop about their cash needs in advance.  We discuss this subject at the beginning of every review meeting.  We help clients to keep a cool head and remember that investing in stocks is for the long run.

Our core philosophy is to “buy and review” investments.  Short-term market swings generally do not trigger us to increase trading activity or otherwise stray from our long-term strategy.  We regularly review clients’ portfolios for actions that may benefit them.  A volatile market is always a good reminder to revisit these tax mitigation strategies:  Roth Conversions, Tax-Loss Harvesting, and Rebalancing.

We sometimes invest money that is new to our management monthly in equal amounts over a period of 10-12 months, called Dollar-Cost Averaging.  We monitor these portfolios carefully.  If the market is 15% or more off a recent high, we may invest any remaining cash.

Market swings can sound scary, especially when hyped up by the news media.  We are here from 9am to 4pm Hawaii time to address your concerns.  Call 808-521-4015 to schedule a 15-minute phone call with a Wealth Management Team member.

Written by Andrews Advisory Associates, LLC © 2025 Originally published in the First Quarter 2025 Investment Update, page 3.

The opinions expressed in this post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. It is only intended to provide education about the financial industry. As always, please remember that investing involves risk of loss of principal and capital. Andrews Advisory Associates, LLC is a registered investment adviser with the U.S. Securities and Exchange Commission. Advisory services are only offered to clients or prospective clients where Andrews Advisory Associates, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Andrews Advisory Associates, LLC unless a client service agreement is in place.