4 strategies for managing volatility

by Stephen Tuttle

Key takeaways

  • Market volatility can cause investors to make emotional decisions that can hurt their ability to reach their long-term goals.
  • Signet believes that a sound investment strategy should provide investors with tools for managing volatility.
  • We discuss approaches to managing volatility: reducing, navigating, harnessing, and monetizing.



For many investors, “volatility” is simply another way to say “losing money.” This is understandable because sharp downward swings can be unnerving. Volatile periods such as 2022, 2020, 2008, and 2000 tend to produce emotional investment decisions — like selling near what later turns out to be a market bottom. But volatility on the upside can be equally hazardous to an investor’s wealth. After all, investments made at or near a top in the market at high valuations are vulnerable to losses during the next downdraft.

The tendency of investors to buy high and sell low has been all too common. Investors driven by emotion wind up being managed by volatility. Fear can drive investors to abandon well-designed investment strategies and greed can cause investors to chase high-flying stocks.

Signet believes the opposite should be true. A sound investment strategy should let volatility be managed by investors. This doesn’t mean that managing volatility is a “one-size-fits-all” approach. We believe in taking a personal approach. We design and implement strategies that seek the reward you seek balanced with the degree of risk you can assume.

We advocate 4 approaches to managing volatility:

1. Reduce volatility

Not all investors want to accept the full volatility of markets. You don’t have to. There are ways we can help investors dampen the volatility of their portfolio, while still seeking to achieve long-term goals. You can implement risk management strategies to seek a smoother ride in the markets. By seeking to minimize the ups and downs of the market, you may be better able to stay invested during inevitable and unpredictable periods of volatility.

If you aren’t comfortable with the wide swings that high volatility investments such as all stock portfolios produce, let Signet help you achieve your goals with a lower volatility strategy. You may give up some return potential, but you may also be able to sleep well at night and take comfort knowing that Signet is carefully managing risk in your portfolio.

Through diversification and other risk management strategies, we seek to dampen the impact of the overall market — the beta — on investment returns. The benefit is a potentially smoother, more enjoyable investment experience that you can stick with in good markets and bad.

2. Navigate volatility

Investing based on past performance can often result in inferior returns, yet this is what many investors keep doing — their investments continue to be heavily influenced by recent experience. The best-performing strategies during one three-year period have not tended to repeat in the subsequent three-year period.

A better strategy focuses on future return expectations. We believe this gives a potential edge to investors who recognize the drivers of return and can identify investments most likely to benefit from changing market dynamics. The key is to remain diversified, focus on attractive investment themes and stay opportunistic when the market dips.

Signet’s investment framework gains insights about markets and returns from data, evidence, and academic research to implement solutions for investors. We believe this is particularly useful for navigating periods of uncertainty and volatility.

3. Harness volatility

Investors can seek to harness or exploit volatility, instead of attempting to minimize it. Periods of market volatility can increase wealth-building opportunities for disciplined investors.

Famous investor, Shelby Davis, said, “You make most of your money in a bear market, you just don’t realize it at the time.” History has taught us that those who are willing to buy good investments at lower prices during periods of uncertainty have met with tremendous success. Great investors recognize the value of making decisions that may not feel good at the time (like buying in a down market), but that can bear fruit over the long term.

4. Monetize volatility

Think of volatility as an income vehicle. It is possible to take advantage of market turbulence instead of having it work against you. Conservative options strategies, such as covered calls and cash-secured put selling, try to turn volatility into an asset for portfolios. The process is like having your own insurance company in which you sell insurance on a group of stocks or a stock index. Options selling strategies have the potential to generate return whether the market goes up, down, or stays relatively even. The main drawback is that options selling strategies may lag traditional stock investing when markets rise very fast.

Is volatility managing you, or are you managing it?

We believe that volatility can be managed. We advise investors to seek ways to “smooth the ride” and potentially enhance portfolio returns. By employing strategies to minimize, navigate, harness, and monetize volatility, we believe you can take significant steps to take the emotion out of investing. Signet can be a key ally in this effort with the sophisticated tools, experience, and expertise needed in volatile markets.

No one knows whether volatility will increase or decrease in the months ahead — the level of volatility is also volatile. If history is any guide, however, investors without a strategy for managing volatility are more likely to be managed by it — to the detriment of their long-term investment goals.

Signet can help you invest during volatile markets

To learn how to manage volatility, please contact your Signet advisor, or Steve Tuttle directly at +1 800-390-2755 or stuttle@signetfm.com.


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