Anchored by the notion of “buy and hold,” many long-term investors will naturally resist adding a tactical component to their investment approach. But failing to do so could also cause them to risk losing sight of a larger reality: that volatile markets are now signaling increasingly consistently.
The world is experiencing policy and economic realignments that undermine two notions that have served “buy and hold” investors well in the last few years: that global growth, while low, remains relatively stable; and that systemically important central banks continue to be both willing and able to repress financial volatility and boost financial asset prices.
This paradigm is coming to an end. Moreover, what may follow is far from predestined, depending in large part on whether politicians are able to bring about the much needed hand-off from excessive reliance on central banks to a broader policy response. In the meantime, we all better get ready for the return of greater financial market volatility.