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The scariest thing for investors this Halloween: volatility

By NexChange
Asset Management

Volatility has become the zombie of the markets, lurking like the undead in the corners, waiting for its chance to suck the life out of a portfolio. Or at least that's how investors feel.

More than half, or 55%, of financial advisors told Eaton Vance in a recent survey that protecting client wealth from volatility has become increasingly important in the last year. "Volatility's unpredictability has made investors uncomfortable in the current market environment and reduced confidence in their ability to reach their goals," says John Moninger, managing director at Eaton Vance, in a press release.

Volatility doesn't have to mean the end of the world, says Eddie Perkin, Chief Equity Investment Officer at Eaton Vance, at an event Tuesday. "History has shown that the best opportunities tend to present themselves when uncertainty is running high," he says. The bears hawk volatility as a warning signal. "We're still living with the 2008 financial crisis," says Perkin. The Great Depression effected an entire generation, and it should be expected that 2008 will do the same. Pure equity funds have been in nothing but outflow-mode, he says. "There's still a lot of fear out there and I don't think it's going away any time soon."

The financial advisors vary in just how scary they think the volatility is. For 39% this volatility is somewhat likely to lead to a bear market. Another 16% say it most likely will mean a bear market. But 38% say a bear market isn't likely at all. Some of the divide comes from the age of the investors. Younger adviors are more likely than their baby boomer counterparts to see an impending bear market, Eaton Vance found. Women too are much less bullish than male advisors.

People need to focus on earnings and interest rates, says Richard Bernstein, CEO and CIO of Richard Bernstein Advisors, speaking at the Tuesday event. "Everything else that people are worried about is completely irrelevant," he says. It helps to know what to expect from earnings and interest rates. For instance, when interest rates go up, stocks get hurt. That shouldn't shock anyone.

Fear is currently overriding greed in investors, and that's not a bad thing, says Bernstein. "[Confidence] leads to stupid things," he says. "When you start reporting how great everything is...realize we're in the eighth or ninth inning."
Photo: Daniel Hollister 

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