Navigating Market Volatility
Volatile markets can cause investors to panic. Learn how Betterment helps you stay focused on your long-term goals.
Rising geopolitical risk
The invasion of Ukraine by Russia has caused a humanitarian crisis and has driven many countries to impose sanctions on Russia. This has resulted in heightened volatility in global markets that has manifested in soaring commodity prices, elevated default risk for Russian debt, and the halting of trading on Russian stocks. These geopolitically-driven market events are also happening at a time when the global economy is recovering from a pandemic and facing elevated inflation.
Betterment’s exposure to Russian securities
Betterment constructs globally diversified portfolios using exchange traded funds (ETFs) as building blocks. For that reason, Betterment portfolios did not have significant exposure to Russian securities prior to the crisis. Our exposure was through allocations in broad emerging markets and international ETFs, which were not heavily concentrated in a specific country. Within the Core portfolio and a 90% stocks/10% bonds allocation, our most commonly held portfolio, the exposure was less than 1% as of Jan. 31, 2022. Our Socially Responsible Investing (SRI) portfolios had even less exposure.
How is Betterment helping me navigate the current environment?
Through our investment selection framework, we select ETFs that meet certain requirements such as liquidity. These ETFs invest in the underlying holdings of the indices that they track. A majority of index providers have already made the decision to remove Russian securities from their indices, deeming them uninvestable. ETF providers will likely follow suit to remove the allocations of their funds to Russia and exit positions when possible. No action is required by Betterment or our clients.
Portfolios may drift due to market fluctuations. Our automated rebalances will therefore realign portfolios back to their target weights by buying underweight positions and selling the overweight ones (buying low, selling high), an important strategy in volatile markets. Our auto-adjust feature creates a glidepath to automatically de-risk your portfolio exposure over time. As you get closer to that major purchase or retirement, you have less exposure to more volatile investments like stocks and more in relatively safer investments like bonds.
What should I do as an investor?
In periods of heightened volatility, do not react to short-term volatility especially with uncertain geopolitical events. The last thing you’d want to do is sell-off in a panic, lock in losses, and miss the opportunity of a market recovery.
This is not the first time we’ve experienced volatility or a crisis, and it certainly will not be the last. We all remember the pandemic, financial crisis, and tech bubble, just to name a few. Market crises, however, have often been followed by double-digit returns a year later. In the onset of the pandemic, markets declined more than 30% only to recover more than 77% a year later. Instead of attempting to time the market, continue to invest regularly to have a dollar cost average experience. Increase your time in the market, investing through the ups and downs.
Betterment’s platform is built with a focus on the long-term. Remember that investing is a marathon, not a sprint. It’s crucial in these moments to practice good financial habits and stay the course amidst uncertainty.