October truly was a scary month as stocks closed the month well below their end-of-September values. The tech-heavy Nasdaq lost over 9.0% by the end of October, while the small caps of the Russell 2000 fared even worse, losing almost 11.0%. The S&P 500 fell close to 7.0% — its largest monthly decline in over seven years. The Dow dropped 5.0%, and the Global Dow sank over 7.0%. A slide in internet stocks, coupled with investor concerns that global economic growth is slowing, helped amp up volatility during October. Yields on long-term bonds rose as prices fell, with the yield on 10-year Treasuries climbing about 8 basis points on the last day of the month.

By the close of trading on October 31, the price of crude oil (WTI) was $64.95 per barrel, down from the September 28 price of $73.53 per barrel. The national average retail regular gasoline price was $2.811 per gallon on October 29, down from the September 24 selling price of $2.844 but $0.356 more than a year ago. The price of gold rose by the end of August, closing at $1,216.80 on the last trading day of the month, up from its price of $1,195.20 at the end of September.

Market volatility has investors confused with where to place their money and, in some cases, has led them to make emotional decisions about their assets. Reporting by CNBC revealed that “daily trading in 401(k) plans was more than double the normal level,” as many traditional buy-and-hold investors hit the panic button and pulled their money out of equity markets.

The market rollercoaster, led by FAANG (Facebook, Apple, Amazon, Netflix and Google) stocks, has rocked the S&P 500 and other equity indexes and left investors with more questions than answers. At Beacon, we know we sound like a broken record in talking about market volatility, but that’s okay. It’s long been our position that diverse portfolios make sense in the long-term, and we believe this market confusion is the perfect time to talk with clients about their long-term goals.

Credibility for Clients

Because of Beacon’s steadfast philosophy on portfolio diversification and market volatility, we were interviewed during the last month by The Street and USA Today to talk about calming investor fears and taking a less emotional approach to investing.

“Investors have gotten to a point that they’re a bit jittery, and they are looking at every company from every angle—like they should all the time, frankly,” Chris Cook, president of Beacon Capital Management, told The Street.

As investors experience this current whipsaw of market ups and downs, they need guidance that can calm their fears. They need advisors to discuss with them that putting too much faith in one sector of the market like the tech FAANG stocks, for example, can look great on the upside, but then will also offer pain points on the way down.

As witnessed by the increase in 401(k) activity with investors hitting the panic button, your clients need an advisor who can provide them with an alternative plan of action to the risks of portfolios too heavily weighted in single sectors.

Client Conversations

At Beacon, most of the conversations we’ve had internally and with clients have centered on how we manage our portfolios. Our flagship portfolio, Vantage 2.0, is epitomized by its simplified strategy that looks to capitalize on market gains, minimize losses and remove emotion from decision-making by instituting stop-loss mechanisms that generally trigger when the portfolio reaches 10 percent correction territory.

In theory, that might lead you to believe Vantage 2.0 has been jumping in and out of the market with all the volatility taking place. In reality, the portfolio hasn’t triggered any stops this year. Had we been using the S&P 500, the DOW or NASDAQ as a benchmark, we would have triggered stops a number of times in 2018.

But, because of our philosophy of equal allocation, where assets are spread equally across all of the investment sectors, the stop-loss mechanism was never triggered. Equal allocation is our first line of defense, and it’s where you will want to start your client conversations. To learn more about how you can begin those conversations and how you can talk to clients about market volatility and the downside protection of diversified portfolios, contact your wholesaler today!