Portfolio Management During Volatile Markets
Tariff announcements and projections are producing an outsize impact on equity prices, as investors try to predict how trade policy will play out over the next several months and years, and the effect on broad economic activity, consumer spending, and business operations and profitability.
It's impossible to predict how exactly asset pricing will move in the near term, since it's largely driven by reactions to policy decisions and indications that are shifting and uncertain (probably even for the policymakers themselves, to some extent). That said, there are some key points to consider as we navigate this from a portfolio management perspective.
For those investors who have a short-term need for some or all of their capital, this should not be a concern. Money that's needed in the near term should not be exposed to equity volatility (as we consistently emphasize with all our clients), so that portion of capital hasn't experienced the sharp pricing retracement in recent weeks and is still available for its designated near-term use.
For clients with capital that's invested for the long term, volatility like this occurs relatively frequently, and is part of why equities provide much higher rates of return than low-volatility assets; we get paid for tolerating pricing volatility. The key is to invest money for its appropriate time horizon, in which case the volatility is not an issue.
One temptation that investors face when volatility spikes downward is to sell out of volatile assets until "things calm down." The problem with that approach is that the market is a forward-looking discounting mechanism. This means that asset prices incorporate all known future projections of cash flows for an investment, not just what's going on right now. So when everything has calmed down, markets will be back up and investors who sold to avoid volatility will have simply locked in their losses and missed out on the upside.
Additionally, the best days for market returns often occur when markets are in a year of negative returns, and they typically take place near the time that the market has significant price dips. So unless you have a crystal ball that tells you exactly when to buy and sell, you're probably missing out on the largest gains if you're selling to try and miss the worst days.
And since the market goes up much more than it goes down, missing out on the days with the largest gains is much worse than being invested during the days with the worst price decreases.
Fortis uses many strategies to optimize outcomes in these market conditions.
We reassess and adjust as necessary to ensure that portfolio asset allocation is aligned with investors’ short-term, mid-term, and long-term objectives.
We rebalance portfolios to benefit from price moves to take gains from assets that are priced high to buy more assets that are selling at a relative discount.
We employ ongoing cash contributions to benefit from lower prices and buy more stock when the market is down. This means you own more stock when the market recovers.
We focus on asset classes (based on industry, company size, and geographic regions) that are projected to outperform over the long term.
Market downturns are historically a great time to invest more cash and dollar-cost-average into equities, given the long-term upward trend of markets. Keeping a cool head, a steady hand, and a long-term perspective has always been immensely advantageous in the context of a well-positioned, well-diversified strategic portfolio.
- Tony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management
Charts sourced from The Vanguard Group, Inc.® (2025). Available here.
