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In Part I, we described market volatility, identified the most popular market “measure” of volatility (the VIX Index), reflected back upon the unforgettable volatility that rocked the stock market during the “ Bubble” and (later) the “Great Recession”, and then promised to share the accumulated wisdom and insights of Merrill Lynch’s Steve Diltz (an established market veteran) regarding how to manage volatility.

This graph shows the steady, often sharp downward trend of stocks from the heart of the Great Recession (ie. Mortgage Crisis): August 2008 - March 2009.
This graph shows the steady, often sharp downward trend of stocks from the heart of the Great Recession (ie. Mortgage Crisis): August 2008 - March 2009.
Thomas R. Petty, C.F.P. from
Oct 6, 2008 saw the Dow Jones Index move in a range of over 5%, ending 3.5% down.

Here are the insights that Steve generously took time to share with us:


“Tom, each investor is eager to invest funds in an instrument that will likely yield a high return with minimal risks. However, we are experiencing a market that continually changes and adapts. Therefore, sound investment is a challenge.”

Steve showed me a great resource for investors from Merrill Lynch: “A Transforming World”. As I leafed through it, one graph grabbed my attention – one that shows how leery millions of investors were about stocks following the plummeting of prices in late 2008. Look at Slide 4 and note how much more money poured into bonds than stocks for several years!

Pointing to a recent upturn in the line representing stock purchases, Steve observed that investors are now more willing to get back into the historically volatile equity market because they sense more growth opportunity there. However, Steve reminds us all that a successful investment process must be based upon and built around a thoughtful, intentional, disciplined approach.

“First,” Steve says, “Investors should consider how much risk they are willing to absorb based on their short- and long-term financial goals. Then, they should consider investment options that match their risk level and estimate the investment returns that might reasonably be expected to result from those choices. Next, they must evaluate whether those returns and that risk are likely to help them achieve their goals going forward.

“As financial advisors, we help clients manage volatility by capitalizing upon solutions that mitigate the risks of volatility -- such as:

• A strong Asset Allocation;

• Buying exchange traded funds (ETFs) based on one of the burgeoning number of "Low Vol" (low volatility) indices;

• Utilizing an informed, measured strategy that incorporates one of the investment instruments based upon the Volatility Index (VIX) – thereby offsetting some portfolio risk.

• Consider an actively managed portfolio of commodity futures (since they are not correlated with U.S. equities).

• Look beyond the borders of the U.S. as a home for some of your portfolio.

“This final point is the central focus of the "white paper" referenced earlier. Optimum diversification will include some allocation of assets to markets overseas. Merrill Lynch has developed a set of rules for global investing in order to help our clients maximize return within the context of a plan that manages volatility and investment risk.”

Thanks for providing this resource for us, Steve. Readers can find these points (referenced by Steve) fleshed out further in tour Slide Show – Screens 5 through 8.

· Consider a wider range of asset classes and extend your global perspective

· Invest toward specific goals

· Rebalance more frequently

Steve wrapped up our time on Volatility by saying: “As an investor, these guidelines can help you to manage volatility risk without committing a great deal of time, while still improving your chances of seeing a strong return on investment (ROI)”.

NOTE: Steve Diltz of Merrill Lynch (CFM, Senior Vice President-Wealth Management, Senior Financial Advisor, Portfolio Manager, PIA Program) is an experienced professional who now focuses on strategies/solutions to help clients meet both short and long term financial calls. You can reach him at 630 954 6346.

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