Monsanto Employees: 4 Reasons for the Return of Market Volatility

Market volatility remains a worry for many approaching retirement. 'Forty-five employees should conduct periodic portfolio reviews and adjustments to reflect their financial goals and risk tolerance,' says Paul Bergeron, of The Retirement Group, a division of Wealth Enhancement Group.

'The market conditions change and you just have to be informed and flexible.' Tyson Mavar with The Retirement Group - part of Wealth Enhancement Group - advises Monsanto employees not to jump ship on short-term market moves.

In this article we will discuss:

1. Impact of Market Volatility: How market downturns are a major concern for pre-retirees and retirees - particularly women and those nearing retirement age.

2. Inflation and Interest Rates: Analyzing how recent economic developments and fiscal policies may push inflation and thus affect interest rates and investment decisions.

4. Changes in Investment Strategies: Evaluation of the transition from quantitative easing to more traditional economic measures and their impact on the market, including the role of algorithmic trading and natural market cycles.

According to a new study from Fidelity Investments, market volatility is a top concern for pre-retirees and retirees - 51% said market downturns were one of their top worries. The study also found that market volatility is a top concern for women more than men - 58% to 44% in women versus 44% in men. And those nearer retirement age worry more about market volatility than those farther away from retirement.

1. Inflation Fears

A February 2 employment report showed continued stagnant wage growth, raising fears of rising inflation and interest rates. Inflation is a rise in general prices that reduces the purchasing power of money.

Expanding economic issues was a fiscal policy issue in the US. Recent tax cuts raised fears the 'fiscal stimulus' could be inflationary and raise interest rates.

The yield on 10-year Treasury bonds hit 2.88 percent on February 8 - the highest level in four years. While higher dividend yields do not necessarily hurt stock prices, they do create competition for investors' money. And so some investors might choose to invest in bonds instead of equities.

2. Algorithmic Trading

A type of investment that uses computers to quickly execute large trades based on predetermined triggers to buy or sell stocks is called algorithmic trading. One estimate is that algorithmic trading comprises about fifty percent of daily S&P 500 Index activity.

Many conditions 'push the button' on buy or sell programs, but market observers say some sell programs were activated when the 10-year Treasury yield approached 3%.

3. End of Easy Money.

That price decline could also signal the end of monetary easing. Recent years saw the U.S. Federal Reserve and other big global central banks adopt a quantitative easing policy of low interest rates. Quantitative easing is when central banks try to stimulate economic development by hiking interest rates. Although last fall the Federal Reserve announced the end of quantitative easing, the markets may just be beginning to feel the effects of that program end.

4. Natural Market Cycles

Market corrections are part of investing. There have been 76 corrections of 5 to 10 percent, 26 pullbacks of 10 to 20 percent, eight retreats of 20 to 40 percent and three drawdowns of more than 40 percent since the end of World War II. A long-term perspective is reassuring because it reminds you that fluctuations have happened many times before.

Market moves are impossible to predict over the next few weeks but likely to remain volatile. Investment portfolios of Monsanto employees and retirees must reflect their objectives, time horizon and risk tolerance. Keep in mind why you invested, stay the course and avoid overreactions.

Like weather, market volatility is variable and hard to predict. We check the forecast and prepare for different weather conditions just as regularly as investors should review and adjust their investment portfolios in response to market conditions. We can't control the weather but we can protect ourselves and our investments from market volatility. Staying informed makes us weather the storm and come out stronger on the other side.

Published on 29 January 2018, CNBC.com. The S&P 500 Composite index tracks stocks; it is an unmanaged index representative of the U.S. stock market. Performance of an index is not indicative of historical performance of an investment. Past performance does not warrant future results. No one can own an index directly. The return and principal value of stock prices will oscillate with changing market conditions. If sold, shares might fetch more or less than their original price.

It is a gamble - and Monsanto employees and retirees must invest with an understanding of their own objectives, time horizon and risk appetite. Changing market conditions will change the returns and principal values of investments. Investments can fetch more or less than their original cost when sold. The opinions expressed and materials provided are for informational purposes only and should not be construed as an offer to buy or sell any security. Any corporations or stock indices mentioned are merely illustrative. Neither is it a solicitation to buy or sell securities.

Wall Street Journal 2 February 2018.

Employees and retirees of the Monsanto must remember that a bond's market value changes with interest rates. Most often, old bonds appreciate as interest rates rise. Depending on whether an investor sells a bond before maturity, its value could be greater or less than the original purchase price. In case the issuer does not default, an investor holding a bond to maturity will get the interest payments due plus the original principal amounting to $600,000. Investments with a higher yield target also are more risky.

Articles you may find interesting:

Sources:

1. 'Retiring in a recession, downturn, or period of market volatility? Things to consider.' Fidelity,  www.fidelity.com .

2. 'FID-SORP-Data Sheet-V10.' Fidelity,  www.fidelity.com .

3. 'Navigating volatile markets.' Fidelity, sponsorcqa.fidelity.com.

4. 'Scenario planning | Helping with market volatility.' Fidelity,  www.fidelity.com .

5. 'Market volatility: Investing strategies for volatile markets.' Fidelity,  www.fidelity.com .