Burks: Long-term view, diversification key to riding out market storms

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In the world of investing, there are moments when it feels like we’re navigating rough waters. Turmoil and uncertainty seem to surround us, often leaving us feeling uneasy and concerned.

Anyone who’s lived through a spring storm in Oklahoma knows what it’s like to weather turbulent conditions. Thunder, lightning, strong winds, hail, and rain can leave you feeling battered, only finding relief when the storm finally passes.

Similar storms form over Wall Street, bringing sudden shocks, downturns and anxieties that can shake our confidence and test our resolve.

Just as storms inevitably return, market volatility is a natural part of investing, but we can prepare ourselves for uncertain conditions by preparing  in advance. Just as levees insulate cities from hurricanes or storm shelters safeguard against tornados, proper diversification and asset allocation are the tools that help anxious investors when clouds turn dark.

Equity markets have seemed particularly turbulent since President Trump took office in January. But, regardless of personal feelings toward the economic policies that have contributed to current conditions, seasoned investors were prepared for these types of market disruptions. Their portfolios are diversified, and they are keeping a long-term perspective because they’ve navigated similar volatility before.

No one enjoys market turbulence, but patient investors who adhere to the fundamentals can weather the ups and downs without undue stress. On the other hand, it may be time for some reassessment for those who hate turning on the news because they’re consumed by all of the red ink in their portfolios.

Do you have the right investment balance for your goals and risk tolerance? Traditionally, portfolios have employed a 60% stocks and 40% bonds allocation to manage volatility and pursue steady growth. However, savvy investors today recognize the importance of broadening their diversification beyond traditional asset classes. Just as relying solely on one levee might leave a town defenseless if that levee breaks during heavy flooding, investing in only one type of asset can expose a portfolio to significant harm during financial storms

Including alternative investments like private equity, private credit, and private real estate can provide additional diversification and potentially enhance returns. Additionally, reducing home-country bias by investing internationally can further help to weather financial storms by spreading risk across diverse economic climates.

Regardless of diversification efforts, investors exposed to equities may have experienced losses. Even when certain investment “buckets” are temporarily down, investors still have tools to employ, such as tax-loss harvesting, to better position themselves for the future and leverage those losses at tax time.

Tax-loss harvesting is a method of lowering our taxes by using investment losses to offset our gains. Investors can sell their equities at a loss and use those losses to offset the gains they’ve seen in other investments throughout the year.

Here’s how it works: An investor sells their stock at a loss and uses the proceeds from those sales to purchases different equities that play a similar role within their portfolio. At the end of the year, the size of the capital gain they must report will be lowered by losses resulting from the tax-loss harvesting measures they took when equity markets were falling.

So, when it comes to investing, navigating turbulent markets doesn’t have to feel overwhelming. Experienced investors know storms will come and go, but through thoughtful diversification and strategic planning, they’re ready to weather whatever lies ahead.

Austin Burks is a licensed financial advisor at Oklahoma City-based Full Sail Capital, where he serves as an investment analyst, using information technology to help manage client portfolios. Learn more at: www.fullsailcapital.com.