3 Key Steps to Surviving a Volatile Market

The stock market has had a shaky start of the year, with the Dow Jones Industrial Average registering triple-digit drops or gains on seven out of the first 10 days of trading in 2015. On days like these, it can be tempting to act on emotions. But doing that can be costly.

Research shows that investors who trade more frequently earn lower returns. In fact, while investors had a median 4.3% return in 2014, according to data from investment firm SigFig, frequent traders — those with 100% or higher portfolio turnover, which amounts to selling all of your portfolio holdings and buying new ones — had a median return of just 0.1%. (The other extreme – portfolio neglect, or less than 1% turnover, isn’t so great either: those folks’ investments earned a median of 2%.)

“The people who really get burned are the people who try to make a lot of trades and time the market on a daily basis,” says Derek Gabrielsen, wealth advisor with Strategic Wealth Partners. “Those people are going to lag behind.”

Consider this: When news of the first case of Ebola on American soil broke, pundits were predicting a huge decline in the stock markets. In the 10 days from Oct 6, 2014 to Oct 15, 2014, the S&P 500 fell 5.4%. But guess what happened a couple of weeks later: the index had recouped all losses and was back up 7.6%, to 2,018.05 by Oct 31.

The S&P 500 dropped 5.4% between October 6 and October 15, 2014, but bounced back and recouped all losses by the end of the month.

The S&P 500 dropped 5.4% between October 6 and October 15, 2014, but bounced back and recouped all losses by the end of the month.

Keeping emotions in check is easier said than done in a volatile market, but it’s not impossible. Here are three ways to handle market volatility:

Budget for risk

We don’t think twice about creating a household budget for mortgages, bills and discretionary spending, but budgeting isn’t a strategy often associated with investing.

That means taking the time to figure out a dollar amount of loss you can stand. For instance, some investors might be able to stomach their portfolios dropping $500 in one month, but if in the next month the unrealized losses have increased beyond their comfort zone, that’s a sign they should re-evaluate the amount of risk they have in their current investment strategy, says Lau. “It’s important to remember that when looking at the value of your portfolio and the unrealized losses (and gains), they are still unrealized. It is a snapshot of a moment in time only,” she says. “By selling at that moment, you now realize those losses and effectively take away the chance to reverse them.  That is what leads many people to buy high and sell low.”

Diversify to prevent losses

One common investing mistake is having all your eggs in one basket. Many investors bet a large portion of their portfolios on one stock — and if that stock plummets, so does the value of their portfolio. One in four investors, in fact, hold more than 23% of their portfolios in a single stock , according to SigFig research. Keep in mind, that doesn’t account for potentially increasing that exposure further if those investors’ mutual funds hold the same stock.

“Investors still have a bad habit of overweighting everything U.S. large cap,” says Timothy Speiss, personal wealth advisor at EisnerAmper. Instead, they should make sure they are diversified not only across multiple asset classes, but diversify within each asset class, as well.

Half of the investors who use SigFig’s portfolio tracker, for example, have less than 3% of their portfolios in international stocks. And since U.S. equity market capitalization is 35%-45% of total worldwide stock capitalization, that range should be an appropriate weighting of an investor’s equity allocation — suggesting that the majority of investors are significantly underexposed to international stocks.

Have a plan and stay the course

Making money in the stock market is about more than just choosing a handful of stocks and buying and selling based on price movements. It requires you to set a time horizon, prepare a plan based on your risk tolerance, and stick to that plan. “You need to know what each investment in your plan is supposed to do,” says Gabrielsen. “Part of that is figuring out how much you need in the way of returns.” Equally important, says Gabrielsen, is your time horizon. The longer your time horizon, the less (if at all) you should be panicking about the day-to-day fluctuations of the market. “While you can’t ignore things, you always need to have blinders,” says Gabrielsen. “If you are diversified and your portfolio is properly positioned for the return you need over a long period of time, you will be fine.”

Ready to get started? Take SigFig’s free Risk Questionnaire to determine your ideal asset allocation, based on your age, investment horizon and risk appetite.

Note: Unless otherwise noted, all data is anonymized and aggregated from investors who use SigFig to track their portfolios.

Donna Fuscaldo is a freelance writer based on Long Island, NY. Her work appears on Foxbusiness.com, Bankrate.com and Glassdoor.com.
How to Protect Yourself Against Investment Fraud

How to Protect Yourself Against Investment Fraud

The theft of customer data at Morgan Stanley earlier this month is just one more in a long list of reasons for investors to make sure they know and trust the people managing their money. By now, most of us are pretty clear on what to do to prevent or deal with unauthorized charges on a credit card. But, if you’ve been saving and investing for years, your brokerage account probably represents a lot more of your worth than a credit card thief could charge at a store.

So how do you keep your investment accounts secure? What protections and recourse do you have, should your accounts be compromised? Here are six things to keep in mind:

Know what you’re buying

The first danger to your investment account is, well, you — and your ability to know a scam when you see one. According to a study prepared for the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation, 84% of Americans have been solicited with a potentially fraudulent investment offer. While people tend to be understandably reluctant to admit that they’ve fallen for a scam, 16% of Americans have invested in a pitch that follows a common pattern for frauds, and 11% own up to having lost money in one of these “investments.” So it’s a good idea to learn some of the red flags, and familiarize yourself with some of the most common types of investment fraud, such as pre-IPO investment scams and high-yield investment programs.

Know your protections

All brokerage firms in the U.S. (with a few exceptions, such as people who only sell variable annuities) are required to be members of the Securities Investor Protection Corporation. SIPC provides insurance to protect your account — up to $500,000, including up to $250,000 in cash — in the event that the brokerage fails. But that’s it: they only cover losses in the event that a firm fails and your assets go missing. If you lost money because you bought into a scam, you’re out of luck — as investors in Bernie Madoff’s infamous Ponzi scheme learned to their chagrin (victims got back the amounts they put into the scam through the Madoff Victim Fund, but there was no reimbursement for the fake profits they thought they were earning). SIPC insurance also does not protect against simple theft or hacks.

Stay cyber-secure

FINRA recommends using your own computer to access your financial accounts–not a shared computer, and never a public one. Always log out completely when you’re done. If anyone else has access to your computer, don’t let your browser “remember” your passwords. And be very careful connecting to your account over a wireless network. “Public wifi is just that–it’s public,” says Michael Kaiser, the executive director of the National Cyber Security Alliance. Hackers could potentially lurk on the network and capture information that way–or set up a spoof network that looks like, say, your hotel’s wifi, but is actually set up to capture your data. Using a VPN “provides a lot more security,” Kaiser says, and a mobile data connection is more secure than a wifi connection.

Two-factor authentication is one way to add another layer of security–there are many ways to do this, but the basic idea is to create a second step to the log-on process beyond entering a password, like entering a code that’s texted to your phone, or using your fingerprint to unlock your phone, for example. This type of setup is becoming more and more common, but it’s not yet available everywhere, says Susan Grant, the director of consumer protection at the Consumer Federation of America. If your investment accounts don’t already offer this, it’s worth asking your brokerage if they can set it up, Grant says.

Understand the risks

Hacks do happen. In fact, FINRA has even warned brokerage firms that some hackers have been able to wire money out of investors’ accounts just by getting access to their email accounts, and then emailing the firm instructions to wire money to an offshore account. Some firms targeted by that scam did try, and fail, to confirm the instructions by phone–and then wired the money. In general, however, if you use the best security available to you, by creating a unique, strong password (for both your email and financial accounts) and using two-factor authentication, you’ll make your account difficult enough to access that crooks may simply move on to an easier target. “Everything can be hacked,” Kaiser says, but for the most part, “crime is opportunistic.”

Make a post-hack game plan

If you do notice unauthorized activity on your account, your first step should be to contact the financial institution, says Charles Rotblut, the vice president of the American Association of Individual Investors. Most brokerage firms’ policies say that they will reimburse investors for any losses due to unauthorized activity. Make sure you’re documenting what happened and what you’re doing to respond. You should also report the incident to the major credit reporting bureaus and ask them to place a fraud alert on your file. You’ll have to close your accounts and open new ones, and change your online passwords. You’ll also want to contact the police. “Having a police report on file can help” as you move through the process of filing all these necessary claims, Rotblut says. You can also file reports with the Federal Trade Commission to help them detect identity theft trends, and with FINRA, to help them spot new types of scams.

Know who you’re dealing with

Unfortunately, the bottom line is that in a situation like what happened recently at Morgan Stanley, where an employee goes rogue, “there’s absolutely nothing that the investor can do to protect him or herself,” Grant says. “To a certain extent you have to trust, and you’re being asked to trust, the entity for safely storing and disposing of your information,” she says. Be aware of that when you’re choosing a firm to work with. Check individuals and firms out using FINRA’s BrokerCheck reports, which include information about past customer complaints or disciplinary actions. And, of course, keep tabs on your account (safely, from your own secure computer), and inform your financial institution right away if you spot a problem.

SigFig uses 256-bit SSL encryption—the same level your bank or brokerage uses—to safeguard your financial information. Your brokerage credentials are needed to form a secure connection between SigFig and your brokerage. This allows us to import your financial information and instantly build your portfolio. No one can see your brokerage credentials (not even SigFig employees). We adhere to the same security encryption standards as your bank and routinely run security audits to ensure we meet these standards at all times.

Sarah Morgan is a freelance writer and editor based in Brooklyn. Her work has appeared on SmartMoney.com and in the Wall Street Journal.

Kicking off 2015 with a New Look and Mobile Features

SigFig 3 screens 2a

SigFig is ringing in 2015 with a new look & feel on web and mobile, along with some exciting updates to our apps. We wanted to provide an improved experience that helps investors make better investing decisions, and the new SigFig is designed to do just that. We’ve also added a number of new features that will make SigFig indispensable to everyday investors, enabling them to not only track, but also manage their investments easily on their iPhone or Android devices.

Today, along with our new look & feel, we are excited to unveil SigFig managed accounts on mobile: an automated investment service that invests your money in a low cost, risk-adjusted ETF portfolio from your mobile device. SigFig monitors your investments on a daily basis to improve your returns, using automatic rebalancing, tax-aware asset allocation, commission-free trading, and dividend reinvestment.

Our investment team has decades of experience successfully managing billions of dollars. Thanks to partnerships with leading brokerages such as Fidelity, Schwab, and TD Ameritrade, we offer hassle-free sign up. Investors can open individual or joint account, IRA, Roth IRA or rollover 401K.

GalaxyS5_SigFigAppSigning up is easy and takes only three minutes: Simply take a risk profile questionnaire, confirm your personalized investment plan, and fund your account from a bank account or an existing investment account.

The investment cost of a SigFig managed account is 0.25% a year. For a $50,000 portfolio, that means less than $10 per month. And with any account, we manage the first $10,000 for free.

If you have any questions, you can speak with one of our investment professionals any time at 1-855-9SIGFIG or email us at premier-support@sigfig.com.

Update: An earlier version of this post incorrectly said that the 0.25% in fees included all underlying fund management fees. In fact, the 0.25% in fees covers all management done by SigFig on the client’s behalf, but does not cover underlying fund expenses, fees charged by the brokerage, or transactions costs. In many cases, clients pay no transactions costs (commissions) because SigFig primarily uses commission-free ETFs. Sorry for the error. For more information, please contact premier-support@sigfig.com.


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The Editors

Aleks Todorova

Aleks Todorova

Editorial Director

Aleks runs content at SigFig. Before joining the company, she ran the editorial teams at Visually and Mint.com. Her work has appeared on SmartMoney.com and the Wall Street Journal, among others. At lunchtime and on weekends, you’ll find her swimming, biking or running — or all three, in that order.

Benny Wijatno

Benny Wijatno

Data Science and Analytics

Benny does all things data and science at SigFig. He was Director of Product Analytics at TinyCo and a Principal at Applied Predictive Technologies, where he helped companies run smarter experiments. He studied Economics at Harvard, is an avid cook, and loves running.