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5 Lessons About Volatility to Learn From the History of Markets

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In 2018, the re-emergence of volatility took many market participants by surprise.

After all, aside from a few smaller, intermittent spikes over the course of the current bull market, volatility has largely been in a long-term downtrend since the aftermath of the 2008 Financial Crisis.

Whether there is more volatility lurking ahead this year or whether the markets continue to calm, it’s worth looking at the last century of market history to put these recent bouts of volatility into context.

Learning From the History of Markets

Today’s infographic comes to us from New York Life Investments and it goes back in time to show us that the volatility experienced in 2018 was neither exceptional or unusual.

Here are five important lessons to learn from it all:

5 Lessons About Volatility to Learn From the History of Markets

This infographic is available as a poster.

With volatility back on the table again, investors are re-learning what it’s like to cope with a sometimes tumultuous market.

Higher volatility can be a source of uncertainty for even the most seasoned investors, but a look at historical data over the last century helps to ease these concerns.

5 Lessons About Volatility

Here are five lessons about volatility that we can learn from the history of markets:

Lesson #1: Volatility isn’t new
Volatility isn’t a new phenomenon – and it’s actually as old as the stock market itself. In fact, if you look at historical swings in the Dow Jones Industrial Average, you’ll see that many of the biggest ones were more than 80 years ago.

Lesson #2: Volatility is actually the status quo
In the last century, volatility has been ever-present in the markets, and between 1935 and 2018 the S&P 500 has seen:

  • 4,563 total days with +/- 1% price movements
  • 1,094 total days with +/- 2% price movements

That works out roughly to a 1% price swing every trading week – and a 2% price swing every month. Yet, over this lengthy time period, and after all of that volatility, the S&P 500 has grown by 25,290%.

Lesson #3: Any short-term volatility disappears with a long-term view
Daily price swings can feel like a roller coaster. But if you take a step back and look at the big picture, this volatility is just a blip on the radar.

For example, if you look at a chart of the S&P 500 from August 1990 to February of 1991, you’ll see that daily volatility was rampant. But zoom out to a 10-year chart, and these daily or weekly swings are barely noticeable.

Lesson #4: Volatility can be easily weathered with a resilient portfolio
Given that volatility has been around forever and that it’s extremely common, that makes it fairly unavoidable. Therefore, to weather periods of volatility, it is imperative to build a resilient portfolio by diversifying between different asset classes.

Certain assets are better at weathering periods of volatility than others. Here are some traits to look for:

(a) Low correlation with the market
These assets can zig when others zag, making them a valuable hedge (Examples: Gold, alternative assets, municipal bonds)

(b) Generates cash flow
When times are uncertain, the market puts extra value on assets that are generating real cash flow (Examples: Stocks that pay dividends, or bonds that pay interest)

(c) Defensive or non-cyclical
During uncertain times, there are still companies with stocks that will thrive. They are usually bigger companies with conservative balance sheets and durable competitive advantages. (Examples: Quality stocks in healthcare, consumer staples, telecoms, REITs, and utilities sectors)

Lesson #5: Volatility reminds us that there is no reward without risk

Investing in stocks comes with risks, but it also comes with the best returns over time:

Asset TypeAnnualized real return, 1925-2014
U.S. Equities6.7%
Government Bonds2.6%
Cash0.5%

If stocks offer the best long run gains – and volatility is an unavoidable aspect of investing in stocks – then we must learn to accept volatility for what it is.

Even better, we must learn to build resilient portfolios that can weather any storm, while minimizing these effects.

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Infographics

The Rise of the Values-Driven Investor

Values-driven investing is on the rise, and this in-depth infographic profiles the diverse demographic it appeals to and why.

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The Rise of the Values-Driven Investor

Many consumers today are considered to be “values-driven”, meaning they consider a company’s stance on environmental and social issues before making a purchase.

Such individuals will research a company’s reputation, boycott brands that are not aligned with their beliefs, and avoid products that negatively impact the environment. These types of concerns, however, aren’t just influencing the things people buy—they’re also changing the way people invest.

In this infographic from New York Life Investments, we profile the values-driven investor and examine the different ways their concerns can be incorporated into an investment portfolio.

What is a Values-Driven Investor?

Values-driven investors seek to align their portfolios with their personal beliefs and create a positive impact for society. Because of these goals, they are naturally driven to consider environmental, social, and governance (ESG) factors when selecting investments.

One common misconception is that this type of investing is only for millennials, but survey data proves this is far from the truth.

Age Group
% Interested in ESG Investing
24-3991%
40-5484%
55+80%

Source: New York Life Investments

Although ESG investing is the most popular amongst younger investors, older investors are not far behind, with 80% of correspondents aged 55+ demonstrating interest. This interest also extends across wealth brackets, as shown in the table below.

Personal Assets% Aware of ESG Investing% Likely to Invest in an ESG Fund, if Aware
$100K-$150K41%43%
$150K-$250K43%40%
$250K-$500K31%41%
$500K-$1MM34%37%
$1M+42%29%

Source: New York Life Investments

It’s clear that ESG investing has captured the attention of a very diverse group of people, but what kinds of issues do these values-driven investors actually care about?

ESG Priorities by Age Group

Values-driven investors are likely to prioritize issues differently depending on their age. For individuals between the ages of 25 and 39, longer-term issues such as global warming receive the highest concern. This is likely due to younger investors having more years ahead of them, and thus a greater chance of exposure to the effects of climate-related issues.

Below is a breakdown of each age group’s ESG priorities.

IssueAges 25 - 39Ages 40 - 54Age 55+ 
Global warming34%34%27%
Impact of plastic on the oceans21%30%26%
Sustainability24%23%17%
Data fraud or theft14%20%29%
Gun control13%20%22%

Source: New York Life Investments

For investors with a shorter time horizon to retirement, immediate concerns take the highest priority. For example, 29% of investors aged 55 and over were concerned with data fraud or theft, compared to just 14% among those aged 25 to 39.

How Can a Portfolio Reflect These Concerns?

Values-based investors have two primary approaches to choose from when building a portfolio tailored to their beliefs.

Approach #1: ESG Exclusionary

The first approach is ESG exclusionary investing, also known as “negative screening”. This method is well-suited for investors who want their portfolios to be completely aligned with their beliefs and values.

It involves the reduction, or avoidance, of exposure to specific industries that go against one’s values. Industries that are commonly screened out include tobacco, gambling, alcohol, and fossil fuels, the latter of which has gained significant attention in recent years.

Commonly referred to as “fossil fuel divestment”, this type of exclusionary approach focuses on freezing new investments in the sector while gradually removing existing portfolio exposure. Today, over 1,200 institutional investors representing $14.6T in assets have pledged their commitments to going fossil fuel free.

Institution TypeBreakdown of Total Assets Pledged
Faith-based organization32%
Educational institution15%
Philanthropic foundation15%
For profit corporation13%
Government13%
Pension fund13%
Non-governmental organization (NGO)4%
Healthcare institution1%

Source: Fossil Free (a project of 350.org)

Approach #2: ESG Inclusionary

The second approach is ESG inclusionary, also known as “positive screening”. This method is for investors who believe that companies with strong sustainability practices can outperform over the long term.

Instead of avoiding specific industries, an ESG inclusionary approach seeks to identify the best companies in any given industry. In practice, this involves the analysis of both traditional financial metrics and ESG factors.

Examples of Traditional Financial AnalysisExamples of ESG Factor Analysis
Analyze the company’s financial statementsExamine the company’s waste management practices
Study historical market trendsMonitor the company’s employee relations
Consider the direction of the broader economyGrade the company’s transparency & disclosure

Research on the effectiveness of ESG factor analysis has been overwhelmingly positive, and is a likely reason for the robust growth these types of strategies have seen in recent years. In fact, ESG leaders (companies with strong ESG practices) even outperformed their respective indices during the COVID-19 selloff in Q1 2020.

Building a Well-Aligned Portfolio

Despite several myths surrounding sustainable investment, there is an incredibly diverse group of individuals who want their portfolios to reflect their personal beliefs.

The typical values-driven investor is 48 years old, which means they’re likely in their peak earning years and are able to make larger portfolio contributions. Thus, this growing demographic is one that the investment industry should not ignore.

The types of issues these investors care about, however, can vary depending on age and other metrics. Thus, it’s important for them to learn about the different investment approaches available. Armed with this knowledge, investors can take better control of their finances and feel more confident in their decisions.

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Infographics

Paradigm Shift: The Rise of Women’s Earning Power

As women’s earning power continues to grow, wealth managers who cultivate a deeper understanding of these clients will ultimately stand out from the rest.

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This infographic is available as a poster.

Paradigm Shift: The Rise of Women’s Earning Power

In 2019, women owned almost 33% of global wealth.

Looking at North America alone, women control $35 trillion in assets. These assets are set to grow by a 6.9% compound annual growth rate (CAGR) until 2023, after COVID-19 effects are accounted for. Notably, the acceleration of female breadwinners is amplifying this trend.

The above infographic from New York Life Investments examines four archetypes of female breadwinners, highlighting their household dynamic and financial priorities as the wealth landscape continues to shift.

A Room of One’s Own

Today, one segment of women makes up nearly 25% of households with over $250K of investable assets: female married breadwinners.

They remain a blind spot across the wealth management profession, but provide a vital opportunity for wealth management professionals.

From a high-level perspective, these primary earners describe themselves as independent and hard working, according to a study by RTi Research. While 75% work with an advisor, only 41% feel knowledgeable about their finances. At the same time, 82% of the primary earners are college graduates, while advancing their financial education remains a priority.

Below is a deep dive on the spectrum of female married breadwinner households, outlining their key mindsets, behaviors, and outlooks.

The Four Archetypes

Female breadwinner households can be broken down into four broad archetypes.

1. We’re In This Together

Accounting for 39% of respondent households, this archetype reflects a collaborative dynamic where both partners appreciate each other and are aligned on future financial objectives.

Household Dynamic

  1. Works as a team with their partner
  2. Partners are proud and appreciative of one other
  3. Typically have a positive outlook

Defining Opinions and Behaviors

  • My spouse supports me: 80%
  • My spouse appreciates my hard work: 74%
  • We are aligned on future financial goals: 66%
  • We live in a “normal” household: 59%

2. I Got It

This archetype comprised 25% of respondents. Typically, the primary earner illustrated pride and enjoyment in this role. At the same time, they felt supported by their partners.

Household Dynamic

  1. Comfortable and experienced in this position
  2. Spouse is supportive and comfortable with a secondary role

Defining Opinions and Behaviors

  • Primary earner role is a source of pride: 43%
  • Primary earner role is fulfilling: 41%
  • As the primary earner I am in control: 33%
  • Always been the primary earner: 61%

3. A Little Help Please

With 26% of respondents, this archetype was an outlier, mainly as they did not feel a positive impact from being a breadwinner. These women carry a larger burden on their shoulders and would prefer if their partner would take on more household tasks.

Household Dynamic

  1. Feel that everything relies on them, want their partner to contribute more
  2. Would even prefer if roles were reversed

Defining Opinions and Behavior

  • Everything depends on me: 42%
  • Want spouse to take on more responsibilities: 29%
  • Negative impact as primary breadwinner: 97%
  • Prefer if spouse was the primary earner: 59%

4. I’ve Got It From Here

This final archetype accounted for 33% of households. These were characterized by the women taking on a primary earner role later in life, while feeling proud in the role as the highest earner.

Household Dynamic

  1. Typically new to primary earner role
  2. Feels supported by their spouse, and long-term financial goals are aligned
  3. Appreciates the hard work partner has done in the past

Defining Opinions and Behaviors

  • My spouse supports me: 59%
  • My spouse appreciates my hard work: 51%
  • Became primary earner later in life: 100%
  • Feels strong: 52%

Getting a better sense of these archetypes can help advisors personalize their approaches—and harness a clearer appreciation of their clients financial goals.

On the Horizon

Of course, female married breadwinners have a diverse range of financial goals. These investment goals and objectives typically vary across different life stages, but they also share many similarities.

For primary earners 60 and over, the most important investment goals were a comfortable lifestyle and protecting their future. On the other hand, breadwinners between the ages of 40-59 were most concerned with saving for retirement. Finally, the key investment goals of those aged 25-39 also surrounded a comfortable lifestyle, saving for children’s education, and saving for retirement.

As women amass greater wealth at faster speeds, understanding how to manage it well becomes increasingly crucial.

A New Wealth Frontier

It comes as no surprise that the primary female earners who work with advisors have better views on their finances.

As a result, opportunity knocks. Half of female breadwinners see their financial advisor as a business partner, and 33% see them as a necessity. At the same time, 66% of female primary earners want an advisor that will make them the most money.

As this powerful economic force continues to accelerate, it could create a watershed decade ahead for both women’s wealth and the wealth management field.

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