Low-Volatility Strategies for a Less-Stressful Ride

After an unusually steady 2017, the U.S. stock market took a more volatile turn in the first half of 2018.1 A number of factors contributed to this year’s volatility, but trade tensions between the United States and its largest trading partners were a frequent trigger. A series of announced tariffs raised the possibility of a broader trade war and repeatedly spurred market jitters.2

Volatility refers to stock market ups and downs, but few investors worry about the ups. It’s the downs that may cause investors to lose sleep at night.

If you don’t need the money in your portfolio for a long time, you may be better off tuning out day-to-day movements in the market and sticking with your investment approach. However, if you are nearing retirement or just have a more conservative risk tolerance, holding stocks and stock funds that tend to be less volatile may help you manage risk while maintaining a robust equity portfolio.


Stocks and Funds

All stocks are volatile to some degree, but investors who are pursuing higher returns have to accept higher risk and price swings. Even so, some stocks have historically been less volatile than others.

For example, stocks of larger, well-established companies tend to be less volatile than the stocks of smaller companies, and certain market sectors tend to fluctuate more than others. A portfolio invested too heavily in a particular company, industry, or market sector could also carry higher risk and volatility.

Some mutual funds and exchange-traded funds (ETFs) — typically labeled “minimum volatility” or “low volatility” — focus on managing volatility and may help stabilize the equity portion of your portfolio. These funds vary widely in their objectives and strategies, and there is no guarantee that they will maintain a more conservative level of risk, especially during extreme market conditions.

Keep an Eye on Beta

One commonly used measure of a stock or stock fund’s volatility is its beta, which is typically published with other information about an investment. The stock market as a whole (represented by the S&P 500 index) is generally considered to have a beta of 1.0. A beta higher than 1.0 means the investment has been more volatile than the broader market, whereas a beta below 1.0 indicates it has been less volatile.

For example, a beta of 0.8 means that the investment has been about 80% as volatile as the market. In theory, such an investment might experience only 80% of market gains during an upswing and only 80% of losses during a downswing — and thus would have less ground to regain when the market turns upward again.

Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. The principal value of all stocks, mutual funds, and ETFs will fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

Mutual funds and ETFs are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Wells Fargo Advisors - Wealth Management & Financial Advisors
975 OAK ST, SUITE 1080 Eugene, OR 97401
Phone: (877) 778-9508

Wells Fargo Advisors does not render legal, accounting, or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences. Wells Fargo Advisors did not assist in the preparation of this material, and its accuracy and completeness are not guaranteed.

This information is intended for use only by residents of (AK, AL, AR, AZ, CA, CO, CT, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, MI, MN, MO, MS, MT, NC, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WV, WY). Securities-related services may not be provided to individuals residing in any state not listed above.

For parties residing outside of the U.S., this information is: (i) provided for informational purposes only, (ii) not and should not be construed in any manner as an offer to participate in any investment or to buy or sell any securities or related financial instruments, and (iii) not and should not be construed in any manner as a public offering of any financial services, securities or related financial instruments.

Products and services listed may not be available, or may have restrictions, depending on client country of residence.

Investment and Insurance Products Are:
  • Not Insured by the FDIC or any Federal Government Agency
  • Not a Deposit or Other Obligation of, or Guaranteed by, the Bank or Any Bank Affiliate
  • Subject to Investment Risks, Including Possible Loss of the Principal Amount Invested

Investment products and services are offered through Wells Fargo Advisors. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC

A note about Social Media: Opinions, comments and actions taken on Social Media are those of the third party and do not necessarily reflect the views of the creator of this profile or of the firm. Social Media is intended for U.S. residents only and subject to the following terms: wellsfargoadvisors.com/social.

Links to third-party websites are provided for your convenience and information purposes only. Wells Fargo Advisors is not responsible for the information contained on third party websites.

©2019 Wells Fargo Clearing Services, LLC. All rights reserved.

FINRA’s BrokerCheck Obtain more information about our firm and its financial professionals
FINRA’s BrokerCheck Obtain more information about our firm and its financial professionals