How investors can prepare for a year of volatility ahead

Yahoo

2 days ago

US markets (^GSPC, ^IXIC, ^DJI) are under pressure in Friday's trading session as trade tensions with China return.
Andrew Fincher, VLP financial adviser, joins Catalysts to explain why risk tolerance and a diversified plan are key to managing market uncertainty.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
Markets are under pressure about 90 minutes into the trading day as investors react to renewed trade tensions between the US and China. The S&P 500 heading lower on the last day of what could be its best May performance since 1990. So how should investors build a portfolio that can withstand the good and the bad amid the trade war. I want to bring in Andrew Fincher, financial advisor at BLP, for this week's FA Corner sponsored by Invesco. Great to have you this morning, Andrew. I just mentioned the volatility of the market following the addition of these tariffs, but the S&P 500 is up 4% from April 2nd, when the reciprocal tariffs were announced by the president. If investors have sort of broadly started to price in a post-tariff reality, how does that impact what you tell clients about whether or not to continue to position in a way that prevents, protects them from any tariff uncertainty?
Sure. Well, first and foremost, Madison, thank you for having me on. And I think when we have these conversations, the first place you have to start with is risk, right? So, our job as advisors is to first meet the clients where they're at. So every client has their own appetite for risk. So our goal is to explore that with the client and understand their emotions before we can even get into guiding them on how to navigate that uncertainty. You know, at the end of the day, it always goes back to that planning component, right? Like we can talk about the markets and all the different pieces of it, but investing is a tool. It's a means to accomplish those goals. So understanding how a diversified approach fits into that plan allows us to sort of frame the discussion before we can get into the details of particular sectors or what that looks like overall.
And talk to me about what you're advising clients on when it comes to specific sectors. I know you mentioned in your notes over to us that the elevated PE ratio for Nvidia is still a risk to you. How does that impact how you talk to clients about tech, for example?
Sure. So, tech is a very important factor when it comes to large-cap growth and just a general diversified portfolio. So, you know, when we look at Nvidia, for instance, you know, when we talk about potential expansion moving forward, you know, Nvidia passing their earnings expectations, that shows that there could be some expansion there. But at the same side, you look at it, and PEs are elevated, so that could persist some volatility. So when you're looking at it, you know, we can talk about whether, you know, we see a positive projection or there could be continued volatility, but having that diversified approach so that you don't have to worry about specific sectors, it allows you to be able to navigate that, right? So you talk about tariffs, that's a big conversation now. You know, with these frameworks for the UK and China deals, and then, you know, Japan buying into US long-term debt, that could open up the door for the Fed to maybe lower rates, but at the same time, if litigation goes through on that, it could increase some of the risks for inflation, in which case maybe you would see some positives on like large-cap value where you could see, you know, energy and financials perform well in those environments or maybe floating rate on the bond side. So it really just depends having that approach so that depending on whatever the market looks like, you're positioned to be able to take distributions or maybe rebalance if you need.
And my guest host, Lou, has a question for you, Andrew.
Hey, Andrew. I don't envy your position because I know sometimes you're a financial advisor and other times you're a mental health counselor. I'm curious what it's been more of in this recent bout of volatility compared to the past, per se, maybe leading up to the presidential election or through COVID. Are you counseling and trying to keep people on course more, or are you seeing more optimism and opportunistic types of conversations about, hey, I want to buy this dip?
Yeah, I think it's a lot of where people stand. So, you know, when we look at it as a whole, some people are very concerned. And so that's where the coaching aspect comes in to understand where is their risk at. If they don't need to take more risk, you know, we could look at statistically and say, okay, you should be in a higher equity percentage, you know, just for different risks, but if the client can withstand, maybe a 5% return, you know, maybe we'll lower it a little bit. But the real key approach here is understanding where the client is coming at to say, hey, maybe we have some opportunities to rebalance here, like we did in May, or sorry, April and March. Some opportunities there to buy those dips. But at the same time, you know, trying to position it to to really understand where they're coming from and then build off of that.
Andrew, really appreciate you joining us this morning for this week's FA Corner sponsored by Invesco. Thank you so much.