This year, even seasoned investors have been feeling at times like they are on a rollercoaster without a safety bar. They may have been wondering if that’s really the case, and if so, how to affix a safety bar or perhaps even switch from this rollercoaster to a tame merry-go-round.
To respond to these sentiments, we are sharing a conversation with Arvest Wealth Management’s Chief Investment Strategist, Clay Nickel, who has been dealing with these concerns, among others, for Arvest Wealth Management for almost 15 years:
How do you measure volatility in the financial markets?
Investment professionals look at the departure from historical levels of return and standard deviations, on either the positive or negative side. There is also an index of market volatility, the VIX, calculated by the Chicago Board Options Exchange. The VIX uses data from the options market to compute expectations of changes to the S&P 500 index in the next 30 days.
How volatile have the markets been lately?
Very volatile, it’s not your imagination. Since the early April announcement of changes in tariffs, market volatility is as high as it was during the pandemic, a period of grave economic uncertainty.
Should investors try to profit from volatility, or should they try to mitigate it? How would they do either?
Individual investors should focus on the long term and have a plan designed to weather any financial market storms. Wall Street traders have high-speed programs in place that react to price changes much faster than any individual can.
Investing for the long term means having an asset allocation plan in place, one that balances the asset classes to optimize returns while keeping investment risk at an acceptable minimum. Developing an asset allocation plan is a service that financial planners may provide for their clients.
What steps do you recommend to individual investors when volatility is high? How about when it is low?
Nothing, typically, is the short answer. The longer answer is that periods of volatility may give rise to opportunities to rebalance a portfolio to restore asset targets. However, each individual’s unique goals should be discussed with their financial advisor.
Is cash a good hedge?
Cash is a safety asset, and as such, has an important role in most individual portfolios. It’s generally a good idea to have enough cash to cover expenses for three to six months for most savers, but up to a year, possibly more, for those in retirement. However, cash does not provide much return, so too much cash in a portfolio may prevent an individual from reaching their long-term goals.
How does an investor’s age figure into this?
The investment time frame is an essential component of portfolio evaluation. With a longer time horizon, taking on more risk may be advisable, and as the horizon shortens, investment risk is often shed by reducing equity exposures. However, age alone is not necessarily the determinant of the time frame. A person in their 80s might have a short time frame, but if they are investing to create an inheritance for children or grandchildren, that would be a much longer time frame. Each investor’s circumstances are unique.
Is dollar cost averaging a way to tame volatility?
Dollar cost averaging means investing an equal dollar amount periodically over time. Someone who is deferring a portion of salary into a 401(k) plan is dollar cost averaging, as more shares are purchased when prices go down, fewer when prices go higher.
Now let’s say someone has realized a significant sum from the sale of an asset, such as a business interest or real estate, and that person wants to invest in stocks and bonds. Academic studies suggest that, in the intermediate to long term, the entire amount can be invested immediately, there’s no need to wait. However, there is an emotional component to the move, and for many it will be more comfortable to “step in” to the investment, say 25% per month for four months. That reduces the chance, to some extent, of buying in at the top of the market. However, it also reduces the exposure to any upward move in prices during the stepping-in period.
Are stock prices historically high at this time?
Prices are near historic highs, but what really matters is value, not price. The value is measured by the ratio of the price to earnings, or the P/E ratio. Historically, for large company stocks, the P/E has been 19 to 20. Today, using forward earnings projections (we can’t steer the car with the rear-view mirror), the P/E for large companies is about 21. If earnings grow, the P/E will fall unless the price goes up in tandem with them.
How risky are bonds now?
Bond investors need to consider two risks. First, there’s credit risk, the chance that the borrower won’t be able to repay the bond to the investor when it is due. The bonds of the U.S. government are considered risk-free in this regard. Corporate bond risk varies based on the strength of the company.
The second risk is interest rate changes, or what we call duration risk. As interest rates rise, the value of existing bonds falls. The longer the term of the bond, the greater the impact an interest rate increase will have. Should interest rates fall, bond values rise.
At the moment, we consider high-quality bonds of medium duration to be good investments.
How can an investor make unemotional decisions?
That’s not really possible, as our emotions and values always enter into our decisions. However, what we can do is try to make investment plans during periods of calm, and then stick to those plans during volatile times. Working with a financial professional can be a big help in this regard.
What are the risks and rewards of tariffs?
Tariffs are a tax, and as such, they will slow economic activity in the short run while adding upward pressure on prices. They may interfere with the supply chain, and that may also push prices higher. In the intermediate term, those price pressures will likely recede. The long-term effect of tariffs and whether they will result in the onshoring of more manufacturing and the strengthening of the economy is an outcome that is possible but not certain.
I have to take an RMD (a Required Minimum Distribution from a qualified retirement plan) this year—should I wait to do it, or take it right away?
We do not recommend trying to time the market. If you are concerned about the fluctuating value of your retirement accounts, you can spread your RMD payments throughout the year instead of taking them all at once. To fund RMDs, you might also consider liquidating assets that are overweight relative to target allocations – this can provide some rebalancing while keeping transaction costs to a minimum. This can be a complex process, so working with a financial professional can help tailor your approach to your unique situation.
What are the key benefits of working with an Arvest Wealth Management advisor when living with financial market volatility?
An Arvest Wealth Management advisor can help develop an asset allocation plan for the portfolio, one that takes into account the time horizon and risk appetite of the investor. The advisor will put that plan into action, filling the asset classes as appropriate. During periods of financial market volatility, during periods of fear or of greed, the advisor will help keep the focus on the long-term goals, not the daily market noise.
We hope this Q&A provides a helpful overview of how Arvest navigates volatile financial markets. Consider reaching out to an Arvest client advisor for more information about creating and implementing a personalized financial plan tailored to your unique situation.
This content has been prepared by The Merrill Anderson Company and is intended as a general guideline.
© 2025 M.A. Co. All rights reserved.
Arvest and its associates do not provide tax or legal advice.
The information presented here is not intended as, and should not be considered, tax or legal advice. Consult your tax and legal advisors accordingly.