“In any market, there is a way to make money,” she says. “In a downturn, we might shift out of smaller tech companies and go to utilities and consumer staples. We will pull the trigger when we make some money and not get greedy. But waiting out the downturn is usually a better option than us timing it right. If a client needs money in the next five years, we have them positioned so it is available.”
For those who want to be a little more aggressive, Mike Kilbourn, CEO of Kilbourn Associates in Naples, Fla., says owners of stocks and ETFs should consider selling options on their holdings.
“For the buyer this is riskier, but for the seller it provides cash flow to even out the volatility,” he says. “The downside to selling covered calls is that you limit your upside to the strike price.
“Volatility is not necessarily a bad thing, but an investor should work with a financial professional who specializes in buying and selling options to do this,” he adds.
Bryan Hoover, an advisor with Fragasso Financial Advisors in Pittsburgh, says the current volatility is unnerving for investors but is not much different than past market downturns.
“The time-tested principal of diversifying investments and monitoring progress toward the client’s financial goals remains the best practice. At no point would I recommend that my clients attempt to time the market with a switch to cash,” Hoover says.
“The amount of cash held by a client should be determined by the need for short-term reserves and preparation for emergency expenses,” he says. An investor who is anxious about the downswings should talk to his advisor, Hoover says.