We’ve seen a lot of situations affecting the markets lately. Oil prices declined by nearly 40%. There were fears of an economic slowdown in Europe. And the Bank of Japan (BOJ) eased its monetary policy. All of this impacted a variety of securities. But do events such as these affect your portfolio? Not necessarily.
Oil prices
As an example, let’s look at oil prices. They tumbled because growth in oil supply has been high, especially from countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC), partly the result of new extraction technologies such as “fracking.” At the same time, demand has been depressed, in part by the slowing of the Chinese economy.
Bank of Japan
As another example, consider the BOJ’s actions in October 2014. When economic growth and inflation didn’t pick up as much as expected, the BOJ expanded its massive stimulus program. The move stunned financial markets, in part because BOJ recognized that there was deflation in the country’s economy, and this move was intended to counter it. It had a major impact on global markets.
Regardless of whether you hold oil stocks or Japanese securities, you could be affected by situations such as these; fear is contagious, and what happens in one market may affect another.
But it’s important to put such situations in perspective. For example, there are many segments of the energy sector, such as utilities, that are not directly impacted by volatility in oil prices; even companies that are, such as those in exploration and production, are used to fluctuations in the price of oil and manage most prudently to stay afloat when prices are down.
If you are concerned about the impact on your portfolio of market fluctuations, contact your advisor. He or she understands events such as those described above and will put them in perspective for you.