The volatility that we recently experienced in the market is very troubling to some investors. Unfortunately, those investors who hit the panic button and sold off are recognizing large losses in their portfolios only to turn to investments that are perceived as safer places to invest.

The fact of the matter is that we invest our money to earn long-term rates of return that will exceed the rate of inflation and help us preserve our purchasing power. Historically, cash has been the worst place to invest over the long term.

Losing Investment Capital in a Volatile Market
According to Fidelity Investments, investors who sold their 401(k) holdings while the market was crashing between October 2017 and March 2018, and then stayed on the sidelines, have only seen their account values increase by about 2%, including contributions, through June of 2019. This compares with those who held on and saw account balances bounce back by around 50%. During periods of extreme volatility, wealth managers will often tell clients to stay invested rather than sell and lock in large losses in a seesaw market.

Building confidence in your strategy is a way to keep from making the mistake of buying high and selling low. Having the mental conviction to tell yourself that you have a carefully planned portfolio of high quality investments goes a long way toward getting through the toughest days of market volatility. If you are unsure of how to select high quality investments, consult with an financial manager or registered investment advisor.

The question is; how do you reach that state of mind? It’s not easy if you are the type of person that tends to get knots in your stomach when the market drops. We outline some steps below that might be able to increase your level of confidence.

Conquering the Fear of Volatility
One step you should take to better handle volatility is to make sure you have adequate cash reserves for a financial emergency that might arise. This way you are not depending on your portfolio for unforeseen expenses and your anxiety level will be lower, knowing that you don’t need to sell your investments when they have declined in value.

Make sure you have a mix of investments that fits in to your risk tolerance and time frame. This can be accomplished by considering how you have felt when past market declines have occurred. Your wealth management advisor should be able to provide you with a thought provoking questionnaire that will give you a score when completed. The score on the questionnaire will have a corresponding asset allocation that you can use to determine the split you will have between stocks, bonds and cash.

Once your allocation has been determined, stick with it. It is a good practice to reallocate your assets on a regular basis to keep your risk level the same. This means that a portion of those investments with better performance will be sold (sell high) to purchase in order to purchase shares in those that have not performed as well (buy low).

Other ways to hedge volatility can be through the use of options. Two simple strategies can be applied. One is the sale of covered call options against underlying stock or ETF positions. In this strategy you (the seller of the option) collect money from a speculator (the buyer of the option) in exchange for an agreement to sell your stock only if it reaches a specified price (higher than where it trades at the time of the transaction). The option must hit the price target (strike price) within a predetermined time frame (expiration date). If it does not, the contract expires you keep the money paid and are free to sell more options against that stock position.

The other strategy is to simply buy a put option. This gives you the right to sell your position in a stock or ETF that you own at a predetermined price within a predetermined time frame. For this privilege you will pay money (a premium) to the potential buyer (seller of the put option) of your stock. This strategy should be implemented in periods of low volatility, as the cost of the transaction will rise as markets begin to fall.

Buy With Conviction
Let’s say you’ve owned a stock that has done well over time. The stock has had a history of increasing revenue, profits and dividend increases. It seems like the stock is usually going up when the market goes up, only now there has been a big selloff in the market, and the stock has dropped dramatically due to market conditions. It may be time to do some homework on the company and make sure that the drop is due to just a generally bad market. If it that turns out to be the case, maybe it is time to buy more of the stock. Great companies often go on sale in market declines, only to have dramatic upturns once the market decline is over.

Speak With Your Wealth Management Team
You should also consult with your financial manager when markets are volatile. Investment professionals are in the business of understanding what is causing the market volatility and can often provide some insight. Often times your investment professional can help ease your anxiety and remind you of your commitment to your allocation and financial goals.

The Sovereign Individual ~ by James Dale Davidson and William Rees Morg

The Sovereign Individual is one of those books that forever changes how you see the world. It was published in 1997 but the degree to which it anticipates the impact of blockchain technology will give you chills. We’re entering the fourth stage of human society, shifting from the industrial to an information age. You need to read this book to understand the scope and scale of how things are going to change.

As it becomes easier to live comfortably and earn an income anywhere, we already know that those who truly thrive in the new information age will be workers who are not tethered to a single job or career and are location independent. The pull to choose where to live based on price savings is already more appealing, but this goes beyond digital nomadism and freelance gigs; the foundations of democracy, government and money are shifting.

The authors predicted Black Tuesday and the collapse of the Soviet Union, and here they foresee that the rising power of individuals will coincide with decentralized technology nibbling away at the power of governments. The death toll for the nation states, they predicted with extraordinary prescience, will be private, digital cash. When that happens, the dynamic of governments as stationary bandits robbing hard-working citizens with taxation will change. If you’ve become someone who can solve problems for people anywhere in the world, then you’re about to enter the new cognitive elite. Don’t miss this one.

Choice Quotation: “When technology is mobile, and transactions occur in cyberspace, as they increasingly will do, governments will no longer be able to charge more for their services than they are worth to the people who pay for them.”

Sapiens: A Brief History of Humankind ~ by Yuval Noah Harari

Whenever I want to impress on someone how good this book is, I ask: “Do you want to know the fundamental difference between humans and monkeys? A monkey can jump up and down on a rock and wave a stick around and screech to his friends that he’s seen a threat coming their way. ‘Danger! Danger! Lion!’ A monkey can also lie. It can jump up and down on the rock and wave a stick around and screech about a lion when there is, in fact, no lion. He’s just fooling around. But what a monkey cannot do is jump up and down and wave a stick around and screech, ‘Danger! Danger! Dragon!’”

Why is this? Because dragons aren’t real. As Harari explains, it is human imagination, our ability to believe in and talk about things we have never seen or touched that has elevated the species to cooperate in large numbers with strangers. There are no gods in the universe, no nations, no money, no human rights, no laws, no religions and no justice outside the common imagination of human beings. It is us that makes them so.

All of which is a rather magnificent preamble to where we are today. After the Cognitive Revolution and the Agricultural Revolution, Harari guides you into The Scientific Revolution, which got underway only 500 years ago and which may start something completely different for humankind. Money, however, will remain. Read this book to understand that money is the greatest story ever told and that trust is the raw material from which all types of money are minted.

Choice Quotation: “Sapiens, in contrast, live in triple-layered reality. In addition to trees, rivers, fears and desires, the Sapiens world also contains stories about money, gods, nations and corporations.”

The Internet of Money ~ by Andreas M. Antonopoulos

If the two books mentioned above help us to understand the historical context in which Bitcoin first appeared, then this book expands on the ‘why’ with infectious enthusiasm. Andreas Antonopolous is perhaps the most respected voice in the crypto space. He’s been traveling the world as a Bitcoin evangelist since 2010 and this book is a summary of talks he gave on the circuit between 2013 and 2016, all tightened up for publication.

His first book, Mastering Bitcoin, is a technical deep-dive into the technology, aimed more specifically at developers, engineers, and software and systems architects. But this book uses some choice metaphors to explain why you can’t ban Bitcoin or turn it off, how the scaling debate doesn’t really matter and why Bitcoin needs the help of designers to lock in mass adoption.

“When you first ride your brand new automobile in a city,” he writes, “you are riding on roads used by horses with infrastructures designed and used for horses. There are no light signals. There are no road rules. There are no paved roads. And what happened? The cars got stuck because they didn’t have balance and four feet.” But fast forward one hundred years and the cars that were once ridiculed are absolutely the norm. If you want to swim around in the philosophical, social and historical implications of Bitcoin, this is your starting point.

Choice Quotation: “Bitcoin is not just money for the internet. Yes, it’s perfect money for the internet. It’s instant, it’s safe, it’s free. Yes, it is money for the internet, but it’s so much more. Bitcoin is the internet of money. Currency is only the first application. If you grasp that, you can look beyond the price, you can look beyond the volatility, you can look beyond the fad. At its core, Bitcoin is a revolutionary technology that will change the world forever. Join.”

The concept of money laundering is very important to be understood for those working in the financial sector. It is a process by which dirty money is converted into clean money. The sources of the money in actual are criminal and the money is invested in a way that makes it look like clean money and hide the identity of the criminal part of the money earned.

While executing the financial transactions and establishing relationship with the new customers or maintaining existing customers the duty of adopting adequate measures lie on every one who is a part of the organization. The identification of such element in the beginning is easy to deal with instead realizing and encountering such situations later on in the transaction stage. The central bank in any country provides complete guides to AML and CFT to combat such activities. These polices when adopted and exercised by banks religiously provide enough security to the banks to deter such situations.

However if a bank encounters any such situation it encounters the following types of consequences:

Reputational risk

The major risk a bank faces when it finds itself caught in any sort of money laundering is reputational risk. The reputation of the bank goes negative and in turn it might face huge withdrawals. There might me loss of profitable business and many other liquidity issues. The quantum of this risk might cause a bank to confront various investigations costs and penalties. The biggest hurdle a bank has to undergo is the situation of mistrust by the customers which is devastating.

Operational risk

It is another one of the major consequences of money laundering which a financial institution faces. It is a kind of risk which lies in the internal procedures, people and system after they breakdown. It is a risk which is included in the operations of the business. Thus it creates disturbance in the smooth functioning of the organization.

Legal risk

Legal risks are also posed to the organizations due to the uncertainties in the legal actions which might come up for the organization to deal with them. These might include certain charges on the bank, the dealing between the money launderer and the bank etc.

Concentration Risk

This type of risks is majorly pertains to the banking industry and defines the probability to which any bank has lent money to a particular group. The increased lending without proper identification or the realization after encountering money laundering act may cause a bank to suffer loan losses which in turns deteriorate banks standing in the industry.

Opportunity Cost

One of the major consequences a bank faces is the increase in opportunity cost. It is increased in a way that the management finds itself spending its time in managing the damage control which the act of money laundering has caused instead of utilizing that time for other better perspective.

Scammers may try to get your money by coming up with a variety of stories and many of them make you carry out a money transfer without your knowing that you are being scammed. Scammers love cash transfers because it is the easiest way of getting money and the money would not even come back to you. Here are a few types of scams that you would need to be aware of in order to protect your hard earned money.

Investment scams

Low income groups are the targets of these investment scams. Moreover, the people that run these scams are unscrupulous. So, you would need to be on the lookout for such scams. The technique to avoid this scam is the “too good to be true” approach. If an organization or an individual is asking you to transfer money to them saying that you would become rich very soon, then the person or the institution is out to scam you. Moreover, you should be extra careful since they insist that you would become rich and tell you how you would become rich soon. It is most probably an investment scam.

Phishing email scams

The scammer pretends to be an official authority in an email that is sent to you in this case. They trick you into handing out sensitive information such as your account details or your credit card details. Typical scammers might try to imitate the government in their style of writing to you or they would pose as the United Nations or some other organization in order to get your money across. They may send you an email along with the details of a website that looks identical to the websites of the official organizations. They may then either ask you to part with sensitive information or to transfer your money immediately.

It can be hard to sometimes spot a phishing scam through an e-mail. However, a few key giveaways such as mistakes in the spelling or the grammar or an unprofessional version of the official website, etc. can tell you that these are scams. You should not get scared and do a money transfer to these organizations or individuals immediately since they would most probably only be scammers. Because of phishing scams, banks have sent out official notices to people, saying that they would never ask for sensitive information from their customers or clients out of the blue.