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Investing

Getting your money right: How to invest in a volatile market

CNBC Select's resident financial advisor gives investors steady advice for a wild market.

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Welcome to CNBC Select's advice column, Getting Your Money Right, where financial advisor Kristin O'Keeffe Merrick will be answering your pressing money questions. You can read her last installment here on whether to invest in bonds when interest rates are high. Have a question you want to ask? Send us a note at AskSelect@nbcuni.com.

Source: Getty Images

Dear Kristin, 

I am completely confused by the markets these days. They are volatile, good news seems to be bad news, bad news is good news — everything seems to be defying the textbooks. Can you shed some light on this and give me thoughts on the year ahead? 

Signed, 

Confused in Colorado

Dear Confused, 

You are not alone, my friend. Many people, including portfolio managers and economists, are just as lost as you are. After wading through the market meltdown of 2022, it feels like we deserve a rally and some peace!

As we all know, 2022 was a year for the history books. Asset markets (both liquid and illiquid) sold off across the board on fears of a recession. This included stocks, bonds, crypto, NFTs, art and classic cars. A recession became a reality when the Federal Reserve started aggressively hiking rates to combat inflation. These rate hikes have continued into 2023, with the Fed deciding on Feb.1 to raise rates by another 25 basis points and leaving the door open for future hikes. 

All that said, this doesn't mean assets will continue to fall. In fact, January was a particularly good month for stocks and bonds.

Why the rally? First, many would argue that stocks were oversold by the end of 2022. Lots of investors have started this year with cash to spend and are looking to buy stocks that are "cheap". Cheap means different things to different people, but betting on stocks that fell 40-70% last year could be considered a sensible thing to do.

Some would argue that January's rally was a "dash for trash" (which sounds like a fun T-shirt). But what it means is that investors bought the stocks that got the most beat up in 2022 and didn't buy stocks based on fundamentals. 

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We are dealing with one main issue which is creating other problems — inflation. Policymakers are hiking rates in order to bring down prices. But high interest rates spook investors.

Everyone wants to know when the hiking will stop. Nobody knows when that will happen, but the market has priced in several more hikes. If the Fed decides to raise rates more than what we are predicting, this will not bode well for markets. Under these conditions, we unfortunately will continue to see extremely volatile markets. 

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Whenever one is trying to ponder investor behavior, it's key to remember that markets like consistency. If you throw a lot of surprises at the market, it won't behave. Thus far, 2023 has been a wild ride. The week of Jan. 31 was just the 23rd week since 1953 that the S&P 500 was up or down at least 1% on all five sessions of a full trading week.

It's rather ridiculous to see stocks move this much. We need some calm. We need some assurances. We need lower inflation. Until we have these things, markets will be difficult. 

My advice is to take slow, steady and calculated risks. Don't buy a stock because it's cheap. Buy it because it is a good company. Or look to invest in the market as a whole with an index fund. Don't load back up on crypto because your beep bop boop coin (I made that up) has gone to zero.

If you don't want to buy stocks, then look for yield. You could buy treasury bonds or even park cash in a high-yield savings account and earn over 5% APY, like with UFB Secure Savings. Just do something though. Remember that when inflation is running at 6% per year and your money is earning you nothing, you are losing 6%. 

UFB Secure Savings

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  • Annual Percentage Yield (APY)

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If you're ready to take action in the market, you could go with a brokerage like Vanguard or E*TRADE that won't charge you commissions or fees. You can also use a robo-advisor like Betterment to build and manage a portfolio tailored to your risk tolerance.

Hope this helps! 

Vanguard

  • Fees/commissions

    $0 

  • Account minimum

    $0

  • Investment options

    Stocks, bonds, ETFs, mutual funds, options, CDs

Pros

  • Excellent customer service
  • One of the largest ETF and mutual funds offerings around
  • Large number of no-transaction-fee mutual funds

Cons

  • $20 annual fee for IRAs and brokerage accounts, though investors can waive this fee by opting into paperless statements
  • Basic trading platform only
  • No robust research and data tools

Betterment

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. For example, Betterment doesn't require clients to maintain a minimum investment account balance, but there is a ACH deposit minimum of $10. Premium Investing requires a $100,000 minimum balance.

  • Fees

    Fees may vary depending on the investment vehicle selected, account balances, etc. Click here for details.

  • Investment vehicles

  • Investment options

    Stocks, bonds, ETFs and cash

  • Educational resources

    Betterment offers retirement and other education materials

Terms apply. Does not apply to crypto asset portfolios.

E*TRADE

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open an E*TRADE brokerage account; minimum $500 deposit to invest in robo-advisor platform Core Portfolios

  • Fees

    Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF and options trades; zero transaction fees for over 4,400 mutual funds; robo-advisor Core Portfolios charges 0.30% annual advisory fee

  • Investment vehicles

    Robo-advisor: E*TRADE Core Portfolios IRA: E*TRADE Traditional, Roth, Rollover, Beneficiary, SEP and SIMPLE IRAs, IRA for Minors and E*TRADE Complete™ IRA Brokerage and trading: E*TRADE Trading Other: E*TRADE Coverdell ESA (Education Savings Account), Custodial Account for minors and small business retirement plans

  • Investment options

    Stocks, bonds, mutual funds, CDs, ETFs, options and futures

  • Educational resources

    Educational library includes in-depth articles and videos for any type of investor

Terms apply.

Pros

  • No commission fees for stock, ETF and options trades
  • No transaction fees for over 4,400 mutual funds
  • Automated investing through Core Portfolios platform (minimum required)
  • E*TRADE Coverdell ESA helps you save for college early on
  • Active traders receive volume discounts on options
  • Free analyst research and investing tools
  • Strong mobile platform

Cons

  • Robo-advisor Core Portfolios requires minimum $500 to enroll and charges 0.30% annual advisory fee
  • Website may be cumbersome to wade through
  • No forex trading

Kristin O'Keeffe Merrick is a Financial Advisor and money expert at her family-run firm, O'Keeffe Financial Partners, located in Fairfield, NJ. 

Catch up on Select's in-depth coverage of personal financetech and toolswellness and more, and follow us on FacebookInstagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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