Wealth Management Insights

Guide to
market volatility
Navigating the ups and downs of the market

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At a Glance
What is market volatility?
Market volatility describes the frequent changes in value for a
specific investment or financial market and is often synonymous with
short-term fluctuations in price or worth. If a security experiences
a high degree of change in its value, it might be considered highly
volatile—and riskier. On the other hand, securities that rarely
experience changes in value are considered to be less risky because
they realize lower volatility.

There are a number of factors that contribute to market volatility―

economic growth, inflation, geopolitical events, monetary policy,
etc. And no one knows for sure the effect these factors may have on
the financial markets or how long the volatility may last.

When investing, it’s essential to accept the fact that eliminating

volatility is nearly impossible, and it will always be a part of the
financial markets. But reducing or balancing riskier investments
with safer, lower-risk investments may help create a more stable
overall investment portfolio.
Constant
Volatility is the pulse of the market
If the financial markets have taught us anything over the long term,
it is that upward markets are often followed by corresponding
downward markets, and vice versa. It’s called volatility, and it always
has been, and always will be, the pulse of the market.

1 Down markets may present buying opportunities

Market swings are common and can be unnerving, but down markets may
present buying opportunities. Buying while prices are low may allow investors
to reap the rewards later.

2 Manage volatility through effective management and planning

The keys to weathering market volatility include maintaining realistic return
expectations, taking a long-term investment approach, avoiding market timing,
and diversifying your assets.

3 Maintain a focus on long-term goals

By learning how to navigate the ups and downs of the market, you can put
market volatility into better perspective to help remain focused on your
long-term goals.

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 Opportunity
1 Down markets may
present buying opportunities
View market volatility as a potential opportunity

Stay focused on your long-term plan

Without a plan, investors are prone to making knee-jerk reactions when
there are swings in the market. A well thought out investment strategy can
provide the guidance needed to help you stay on track when inevitable market
fluctuation occurs. It can also point you toward the types of investments that
best align with your financial goals. By maintaining a clear purpose for your
investment strategy, you help yourself stay on track and confidently navigate the
ups and downs of the market.

When developing your investment strategy, consider the following factors:

n Y
 our investment goals. Specifically, for what or whom are you accumulating
funds? Your investment goals will help you determine suitable investments.
n Y
 our time horizon. How many years will it be until you need to use what
you have invested? Longer-time horizons may provide flexibility for more
aggressive investment choices.
n Y
 our tolerance for risk. Take your broader financial situation into account and
consider how comfortable you are with varying degrees of risk as you pursue
your investment goals.

Market swings are common and can be

unnerving, but there is a silver lining. Down
markets may present many buying opportunities
for investors. Buying while prices are low may
allow you to reap the rewards later.

2
Investing means staying the course, especially
during times of short-term market volatility
Volatility is a natural occurrence in the market. One of the keys to successful
investing is to not overreact to it. In fact, despite periodic downturns, the financial
markets have tended to rise over the long term. And even though some downturns
have been severe, they seldom lasted for more than a year.

Since the beginning of the stock market, there have only been four times that
the Standard & Poor’s 500® Index (S&P 500®) was negative two or more years in a
row. Looking at these historic downturns in the S&P 500® ―the Great Depression,
World War II, the Oil Crisis, and the Tech Bubble―you can see that prolonged
down markets were not typical and tended to be followed by
a period of growth.

Uncommon Bear Markets Have Led to Growth Opportunities1

53.99%

37.20%

28.68%
26.46%

20.34%
Annual Return S&P 500®

Great Great
2003

2009
1942
1933

1975

Depression WW II Oil Crisis Tech Bubble Recession

1941

1973

1974

2000

2001

2002

2008
1929

1930

1931

1932

1940
1939

-8.42% -8.19% -0.41% -9.78% -9.10%

-11.59% -11.89%
-14.66%

-22.10%
-24.90%
-26.47%

-37.00%

-43.34%

Past performance is no guarantee of future results.

1. Source: Morningstar, 12/31/15. This information is for illustrative purposes only and is not indicative of any investment. The Standard & Poor’s 500® Index is an unmanaged index considered
to be representative of the U.S. stock market in general. Prices of common stocks will fluctuate and may involve loss of principal when redeemed. The National Bureau of Economic Research
was used for the recessionary period information. An investor cannot invest directly in an index.

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 Perspective
2 Manage volatility through effective
management and planning
Pursue long-term objectives with time-tested strategies

Fortunately, there are a number of time-tested strategies that may help you
deal with market volatility. Two of the most prevalent are: invest for the long
term and maintain realistic performance expectations when it comes to returns.
Coupling these strategies with maintaining proper portfolio diversification and
avoiding the pitfalls of market timing, you’ll have the foundation needed to help
manage your overall exposure to market volatility.

Maintain realistic expectations about returns

Historically, the stock market has been up more than down. Often after a lengthy
bull market, some people lose sight that their investments could generate
negative returns. In order to keep market volatility in perspective, it’s important
to maintain realistic expectations about your investments, especially if returns
move closer to their historical average.

Historical Performance of Various Investments2

Past 25 Years 9.82%

Common Past 5 Years 12.57%
Stocks

Past 25 Years 6.86%

Corporate Past 5 Years 4.38%
Bonds

Past 25 Years 5.87%

Government Past 5 Years 2.77%
Bonds

Past performance is no guarantee of future results.

The value of equity investments is more volatile than the other securities. Government bonds are guaranteed as to the timely payment of principal and interest.

2. Source: Morningstar, 12/31/15. Common stocks are represented by the Standard & Poor’s 500® TR Index, an unmanaged index considered to be representative of the U.S. stock market
in general. Corporate bonds are represented by the Barclays U.S. Credit TR USD Index, an unmanaged index considered to be representative of publicly issued, SEC-registered, U.S. corporate
and specified foreign debentures and secured notes. Government bonds are represented by the Barclays U.S. Government TR USD Index, an unmanaged index considered to be representative
of fixed-income obligations issued by the U.S. Treasury, government agencies, and quasi-funded corporations.

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 1 Year 74.58%
-37.00% 37.58%

5 Years 30.86%
-2.30% 28.56%

10 Years 20.59%
Take a long-term approach to investing -1.38% 19.21%
It’s important to focus on your long-term goals and not become distracted by
short-term volatility. While losing money in the financial markets is never easy
to20accept,
Years
remember the old adage―time is on your side. Typically, the longer
7.87%
a stock portfolio was held, the more likely overall positive7.81%
results would15.68%
have
been realized.

As highlighted in the chart below, an investment during any one-year period in

the stock market since 1979 would have resulted in a return of over 37% in the
best year, and a loss of 37% in the worst year.3 This gap narrows the longer you
invest. The lesson here is to prepare for the long haul and try not to overreact to
periods of uncertainty.

A Longer Time Horizon Has Lessened the Impact of Volatility3

Annual Return S&P 500®

Worst Performance Range Best Performance

1 -37.00% 74.58% 37.58%

Year

5 -2.30% 30.86% 28.56%

Years

10 -1.38% 20.59% 19.21%

Years

20 7.81% 7.87% 15.68%

Years

Past performance is no guarantee of future results.

3. Source: Morningstar for the period from 1/1/79-12/31/15. Stocks are represented by the Standard & Poor’s 500® Index, which is an unmanaged index considered to be representative
of the U.S. stock market in general. An investment cannot be made directly into an index. Prices of common stocks will fluctuate and may involve loss of principal when redeemed. This chart
is an illustration of the stock market in general, comparing best- and worst-year periods. It is for illustrative purposes only and is not representative of any investment or portfolio. The chart is
based on reinvestment of income and compounded annual return. It also assumes no transaction costs or taxes.

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 Diversification
Avoid market timing
During a volatile market, it may be tempting to sit on the sidelines and wait until
the market gets better to invest. In theory, it sounds easy. But, the truth is no
one can predict what the market will do a day from now, a week from now, or a
year from now. That’s why waiting for the perfect time to invest can be a losing
proposition, especially over the short term.

Many investors Consider that if you had missed just the best 10 days of the market over the past
15 years, you would have generated a significantly lower return over that time
react to real or
period. That lower return is only compounded when you miss the best 20 days,
perceived financial the best 30 days, and so on. Is this something that you can afford to do? Probably
loss with a fight or not, which is why many financial professionals recommend that you choose
flight protection sound investments that match your goals and risk tolerance and hold them
instinct and take for the long term.

irrational steps to
exit the market. It’s Missing the Best Days of the Market Can Hurt Total Investment Return4
important to remain
calm and realize that $25,000
this action may be 20,000 $20,799
counterproductive
Growth of $10,000

15,000
to your long-term
investment strategy. 10,000
$10,520

5,000 $6,585
$4,402
0
Total Period Miss the Best Miss the Best Miss the Best
of Investing 10 Days 20 Days 30 Days

Annual
Return 5.00% 0.34% -2.75% -5.32%

Past performance is no guarantee of future results.

4. Source: Standard & Poor’s 500® Index, 12/31/15. Average annual returns are based on the S&P 500® Index from 12/31/00-12/31/15. Large-capitalization stock performance is
measured by the S&P 500® Index, an unmanaged index considered to be representative of the U.S. stock market. Prices of common stocks will fluctuate with market conditions and
may involve loss of principal when sold. Results assume reinvestment of all distributions, including dividends, earnings, and expenses, and are not indicative of any past or future
returns of any investment. It is not possible to invest directly into an index.

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Diversify your assets
Investment options span every sector of the stock and bond markets, but
allocating your assets based on performance alone is often ill-advised because
the market is a moving target. One year, a particular type of security can be a star
performer, only to severely underperform the very next year.

Since performance in any one asset class can be unpredictable depending on

shifts in the market, investing across several asset classes can provide greater
diversification potential. Therefore, if one asset class performs favorably, it can
potentially offset another that is performing less favorably—providing more
balance to your portfolio when market shifts occur. However, it is important to keep
in mind that diversification does not guarantee a profit or ensure against a loss.

The chart below shows the fluctuating performance for various indices that
represent certain asset classes, based on total annual returns.

The Best and Worst Performers Vary from Year to Year5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

50% 46.29% 43.30%

29.09%
26.86%
25 18.51%
14.75%
Annual Return

11.81%
5.93% 7.84% 5.67%
4.33% 5.24% 4.90% 4.21%
0
-2.02% -4.90%
-9.78% -7.47%
-14.82%
-25

-50 -44.32%

Small Growth Stocks Mid-Cap Value Stocks Large-Cap Growth Stocks Mid-Cap Growth Stocks
Bonds Foreign Stocks Small Value Stocks

Past performance is no guarantee of future results.

5. Source: Morningstar, 12/31/15. The chart represents the fluctuating performance for various indices that represent certain asset classes based on total annual returns. Indices are
unmanaged and do not represent the performance of any specific investment. One cannot invest directly into an index. Large-cap growth stocks are represented by the Russell 1000®
Growth Index, an unmanaged index that measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. Mid-cap growth
stocks are represented by the Russell Midcap® Growth Index, an unmanaged index that measures the performance of those Russell Midcap companies with higher price-to-book ratios and
higher forecasted growth values. Mid-cap value stocks are represented by the Russell Midcap® Value Index, an unmanaged index that measures the performance of those Russell Midcap
companies with lower price-to-book ratios and lower forecasted growth values. Small growth stocks are represented by the Russell 2000 Growth® Index, an unmanaged index that measures
the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. Small value stocks are represented by the Russell 2000 Value® Index,
an unmanaged index that measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. Foreign stocks are represented
by the MSCI EAFE® Index, an unmanaged, capitalization-weighted index containing approximately 985 equity securities located outside the U.S. Bonds are represented by the Barclays U.S.
Aggregate Bond Index, a benchmark index composed of U.S. securities in Treasury, government-related, corporate, and securitized sectors. It includes securities that are of investment-grade
quality or better, have at least one year to maturity, and have an outstanding par value of at least $250 million. Stocks tend to be most volatile, whereas bonds may offer a fixed rate of return.
Small-company and mid-cap growth and value stocks are more volatile than large-company growth and value stocks, are subject to significant price fluctuations and business risks, and
are thinly traded. There are also additional risks associated with bonds and foreign/international investing. Foreign currency fluctuations, political and economic instability, and differences
in accounting standards may apply. Bonds are subject to interest-rate risk and can lose principal value when interest rates rise.

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 Strategy
3 Maintain a focus on long-term goals
Invest regularly to take advantage of opportunities

Dollar cost averaging can help take the emotion out of investing
Avoiding investing because of market volatility The chart below compares two different
can jeopardize your long-term goals. A good investment strategies. As shown, an investor
compromise is an automatic investment plan. achieved a lower average cost per share with dollar
Consider investing a set amount of money each cost averaging ($12.05 vs. $17.00) and was able to
month by establishing systematic withdrawals purchase 1,991.88 shares, which were 580.12 more
from your bank account. Over time, these than the single investment strategy. In the long run,
automatic investments can really add up. In fact, this can help an investor generate additional wealth
investing in a down market when prices are low can if share prices rise.
lead to potential rewards later, when prices rise.
Of course, dollar cost averaging does not
One method of periodic investing is dollar cost
guarantee a profit or protect against losses in a
averaging, a way to invest over the long term by
declining market. Therefore, you should consider
guiding you to buy more shares when prices are low
your ability to continue purchases through periods
and fewer when prices are high.6
of low price levels.

Dollar Cost Averaging Strategy7 vs. Single Investment Strategy

225 Number of Shares Purchased

222.22
$17.00 Share Price
$16.00 200.00 200.00
180 181.82
$15.00 181.82
Total Shares Purchased

166.67 166.67 $14.00

153.85
135
133.33 142.86
125.00
117.65 $13.00
90 $12.00 $12.00
$11.00 $11.00
$10.00 $10.00
$9.00
45

0
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Single Investment Strategy: Investing $24,000 at one time Total shares purchased: 1,411.76 Average per
share: $17.00

Dollar Cost Averaging Strategy: Investing $2,000 per month for one year Total shares purchased: 1,991.88 Average per
share: $12.05

6. This approach is not for everyone. Dollar cost averaging does not assure a profit and cannot guarantee against a loss in declining markets.
7. This hypothetical example shows how dollar cost averaging may work in a down market. It is for illustrative purposes only and does not reflect the actual performance of any investment product.

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Match your comfort level to your investments
As important as it is to develop a solid investment strategy, it’s equally important
to match your investments to your comfort level. Even if your investment goals
and time horizon point to more aggressive investment options, you need to
ensure that you are comfortable with the possibility of short-term fluctuations
to the value of your portfolio.

If you find market downturns too nerve-wracking, work with your financial
professional to review and appropriately revise your investments. But be sure
to keep your investment goals in mind and be cautious about being overly
conservative, especially if you don’t need to access your invested funds for
a long period of time.

About risk
Mid-capitalization companies are generally less established, and their stock
may be more volatile and less liquid than the securities of larger companies.
Bonds are subject to interest-rate risk and can lose principal value when interest
rates rise. Government bonds are guaranteed by the full faith and credit of the
U.S. government as to the timely payment of principal and interest. Stocks
of small-capitalization companies may be subject to higher price volatility,
significantly lower trading volumes, and greater spreads between bid and
ask prices than stocks of larger companies. Small companies may be more
vulnerable to adverse business or market developments than mid- or large-
capitalization companies. The principal risk of investing in value stocks is that
the price of the security may not approach its anticipated value or may decline
in value. Growth stocks may be more volatile than other stocks because they
are generally more sensitive to investor perceptions and market moves. During
periods of growth stock underperformance, investment performance may
suffer. Foreign securities may be subject to greater risks than U.S. investments,
including currency fluctuations, less liquid trading markets, greater price
volatility, political and economic instability, less publicly available information,
and changes in tax or currency laws or monetary policy. These risks are likely
to be greater for emerging markets than for developing markets.

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This material is provided as a resource for information only.

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PROTECTION. RETIREMENT.
INVESTMENT. ESTATE.
Trusted Guidance. Comprehensive Solutions.