By Will Hubbard Two related themes have been dominating my conversations with investors these days. First, many are worried about how market and economic volatility will affect their investments. Second, they want to discuss index investing. From the way some investors talk about it, they assume that investing in an index that tracks the S&P 500 is a sure thing. They talk about “getting 6%” from the S&P the way they talk about a Treasury bond being guaranteed. Both of these themes seem to stem from fear: Investors are worried about market volatility eating away at their nest eggs, but they are also overwhelmed about what to do about it. Putting everything in an investment that tracks the S&P 500 Index seems an easy way to avoid that responsibility. However, a dynamic, risk-managed approach that is diversified across asset classes and investment methodologies provides investors with more flexibility to face market and economic uncertainty. Information overload Investors often have a hard time distinguishing between long- and short-term market and economic trends. This confusion can make it difficult to decide how to invest. And it’s easy to see why investors struggle. Consider the parade of news items from just the last five years, including those about the U.S.–China trade war, U.S. debt-ceiling negotiations, the recent bank crisis, elections, supply-chain issues, government spending, cryptocurrencies, the pandemic, and artificial intelligence. Today, investors face a fresh set of concerns: Mortgage rates are at highs not seen since 2000, and auto delinquencies of at least 60 days have risen to levels higher than during the Great Recession. These trends persist despite historically low unemployment, reports S&P Global. Yet, regardless of all of this negativity, the market seems OK. Though metrics like forward price-earnings (P/E) ratios and cyclically adjusted P/E (CAPE) ratios suggest the market is overextended, they don’t necessarily indicate that investors should run for the hills. According to J.P. Morgan’s Guide to the Markets , the S&P’s long-term P/E is 16.78X earnings, and the market currently trades at 19.57X, a 15% premium to historical norms. Let’s move our focus from technical data to information used by the National Bureau of Economic Research (NBER) to call a recession. The majority of that data is still reasonably strong. The solid red bars on the left of the following chart represent the initial COVID lockdowns. It’s clear that all indicators fell off a cliff. But we seem to have stabilized with some recent slowdowns in industrial production. It’s unclear if this is part of a normal economic cycle, or if it’s indicating something more serious. Does your investment approach take advantage of market changes? Given how challenging it is for investors to process the deluge of market and economic information that comes their way, it’s understandable why they would be tempted by the relative ease of index investing. However, index investing may not provide the flexibility and diversification needed to manage for risk and growth as the market environment changes. For instance, the U.S. has dominated the global investment landscape over the past 14 years. Many U.S. investors seem to think that this means a 6% return from the S&P 500 is a sure thing. However, if we broaden our view across the past 50 years, we also see extended stretches when international investments outperformed U.S. investments. These major cycles show the importance of having an investment approach that includes more than one type of asset class and can respond to changing conditions. For U.S. investors, diversifying into investment strategies that can adapt and take advantage of international opportunities in particular is becoming more compelling. Consider the following relative performance chart between the EAFE Index (an index that includes companies in 21 countries in Europe, Australasia, and the Far East) and the U.S. through the 1980s. The difference between non-U.S. investing and U.S. investing was nearly 283% across the decade. Following a risk-managed investment approach is important (and easy!) If you are wrestling with how to prepare for market volatility and macroeconomic concerns, consider an investment approach that uses solutions that diversify across asset classes, geographies, and investment strategies. Flexible Plan Investments (FPI) makes that process easy. Just fill out FPI’s suitability questionnaire and, working with your financial adviser, use the results to help you choose the right dynamically risk-managed investment strategy or strategies for you—including one of FPI’s many easy turnkey options . I think you’ll find that having a portfolio designed to continuously respond to the risks and opportunities that arise over time in the market (so you don’t have to) is a more effective way of dealing with “market overwhelm” than putting everything in an index fund and hoping for the best.