Investors could face turbulent markets similar to the roller coaster ride of 2011. What’s driving the volatility?
Investors might want to “buckle up,” warn market analysts expecting a return of the extreme volatility that took stocks on a roller coast ride at the end of 2011.
Eighty percent of the investment strategists and money managers participating in a recent CNNMoney survey predict market volatility will increase over the next several months. A key driver: declining confidence among investors due to the looming “fiscal cliff.” The term refers to the expiration of the Bush-era tax cuts, combined with mandatory cuts in federal spending, a mix that threatens to tip the nation back into recession.
Concern over the ongoing European debt crisis, slowing growth in China and a weakening U.S. economy could turbocharge the volatility, according to CNNMoney. Three-fourths of the financial professionals surveyed said that the markets would benefit from a victory by Republican presidential challenger, Mitt Romney.
Investors were previously unnerved by the wild stock market swings that took place in the third quarter of 2011, according to a Millionaire Corner survey conducted at the time, but most appear to have developed strategies to cope with volatility. Our research shows that approaches vary considerably with wealth: the most affluent investors appear to be willing to accept the most risk.
Millionaire investors surveyed by Millionaire Corner in June say they are most likely to invest in dividend stocks in today’s market of uncertainty and volatility. More than 40 percent said they would buy stocks in companies paying dividends, while 15 percent favored investing in products guaranteed by the Federal Deposit Insurance Corporation. (Dividend stocks are considered to be more stable than growth stocks, but the products still pose investment risks.)
Main Street investors – those with less than $100,000 to invest – appear to be much less inclined to take on investment risk in times of extreme volatility. Nearly 30 percent said they were most likely to invest in gold under volatile or uncertain market conditions, while about 26 percent favored money market mutual funds and another 18 percent would invest in FDIC-insured products.
Few investors expressed interest in Treasuries or corporate bonds in volatile times, though nearly 11 percent of Millionaire investors said they would buy municipal bonds to cope with volatility.