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4 steps for successful investing — and insights for a potentially volatile 2017

Investors are upbeat about the economy, but also bracing for market volatility in 2017. Scott Wren, senior global equity strategist for Wells Fargo Investment Institute, shares insights.

January 25, 2017

Investors are cautiously optimistic about the economy, but three out of four investors are also expecting market volatility in 2017, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index, which ended 2016 at a nine-year high.

With the U.S. economy currently chugging along at about a 2 percent annual growth rate, investor optimism mainly reflects the outlook for vigorous economic growth. That component of the index improved the most, with 57 percent of investors — up from 45 percent in the third quarter — indicating they are positive about growth prospects. More than half of survey respondents also are optimistic about the stock market and job prospects. The survey was conducted by telephone with 1,012 U.S. investors Nov. 16-20, 2016.

So, what is an investor to do in 2017 as the stock market reaches historic highs?

Scott Wren
Scott Wren

Scott Wren, senior global equity strategist for Wells Fargo Investment Institute shares insights about volatility:

  • First, remember that market volatility is nothing new and it can mean a significant downward or upward movement — and long-term investors can take advantage of that.
  • Second, investor worries about market volatility aren’t surprising, given the uncertainty around the Trump administration’s policies and what they may portend for the economy and the markets. But last year’s market wasn’t as volatile as many investors may have thought, and we don’t foresee a lot of volatility in the U.S. markets for the first half of the year. We encourage investors to think of volatility in terms of what opportunities it may present.
  • Lastly, after breaking through a psychological market barrier, such as the Dow Jones Industrial Average topping 20,000, some investors may pay more attention to the news and wonder if now is a good time to get into the markets, which could fuel the rally even higher. From this strategist’s perspective, Dow 20,000 would be seen as just another number from a fundamental and economic standpoint. It is important for investors to focus more on the economy, corporate earnings, and valuations.

 

“As this New Year begins, it’s a good reminder to review your goals. In this uncertain environment, developing a long-term financial plan can help navigate through potential market volatility, whatever direction it may go,” said Wren, who also shared insights on investing.

Four steps to successful investing

  1. Start with a plan. No formula fits every investor in every situation, so begin by deciding financial goals. Some will be near-term, such as establishing a “rainy day” fund. Others will be intermediate-term objectives, such as buying a home. Still others will be longer-term goals, such as planning for a comfortable retirement. It is also important to assess how much risk can be tolerated to achieve those goals.
  2. Construct your portfolio. Many considerations go into making decisions about what to do with your personal wealth to reach your financial goals. Diversification is key. You can potentially help your money grow and reduce losses if you spread your assets among a variety of investments. This will help you manage your emotions amid changing circumstances. Diverse asset allocation is often your most important investing decision.
  3. Globalize your portfolio. A properly diversified portfolio should take international as well as U.S. investments into consideration. Don’t get discouraged when negativity surrounds certain regions, such as the eurozone. Focus on the long-term positive outlook for global economic growth.
  4. Maintain alignment to your plan. You change, and your life changes, which means your investment portfolio may also need to be adjusted. Market movements and the passage of time should prompt a regular review of your portfolio.

Risks:All investing involves risk including the possible loss of principal.

Diversification cannot eliminate the risk of fluctuating prices and uncertain returns.

Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility.

Definitions:These findings are part of the Wells Fargo/Gallup Investor and Retirement Optimism Index, which was conducted Nov. 16-20, 2016, by telephone. The Index includes 1,012 investors randomly selected from across the country with a margin of sampling error of +/- four percentage points. For this study, the American investor is defined as an adult in a household with total savings and investments of $10,000 or more. About two in five American households have at least $10,000 in savings and investments. The sample size is comprised of 73% non-retirees and 27% retirees. Of total respondents, 42% reported annual income of less than $90,000; 58% reported $90,000 or more. The Wells Fargo/Gallup Investor and Retirement Index is an enhanced version of Gallup’s Index of Investor Optimism that provides its historical data. The median age of the non-retired investor is 46 and the retiree is 70.

The Index had a baseline score of 124 when it was established in October 1996. It peaked at 178 in January 2000, at the height of the dot-com boom, and hit a low of negative 64 in February 2009.

Gallup delivers analytics and advice to help leaders and organizations solve their most pressing problems. Combining more than 80 years of experience with its global reach, Gallup knows more about the attitudes and behaviors of employees, customers, students and citizens than any other organization in the world.

Dow Jones Industrial Average is an unweighted index of 30 “blue-chip” industrial U.S. stocks.

Disclosures:Wells Fargo Investment Institute, Inc. is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company and provides investment advice to Wells Fargo Bank, N.A., Wells Fargo Advisors and other Wells Fargo affiliates.

Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.

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