Increased Volatility Can Result in Investment Losses Even in Bull Markets

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with brokers who have failed to recognize their clients’ need for lower-risk portfolios. It’s no secret that the COVID pandemic has made the stock and bond markets more volatile. When the outbreak first hit markets, it triggered a massive sell-off in everything from blue chip stocks to municipal bonds.

Yet many broker-advisers failed to protect their clients, keeping them in high-risk portfolios that lost money. Even though they constantly make claims to the contrary, almost no advisor can time markets to fully protect investors. Few saw the pandemic coming, or the devastating impact it would have on the world economy.

After the stock market peaked on February 19, 2020, it dropped 34% in a month, hitting a bottom on March 23. But by June, the market had bounced back, surging 39%. Then, on Oct. 28, the Dow dropped more than 900 points as COVID cases again surged worldwide in a second, record-setting wave. Who could have predicted such stomach-churning volatility? Investors who were risk averse and needed to protect principal – and were overexposed to stocks – got burned the most.

It’s highly unlikely that, given the return of lockdowns and the slow arrival of a COVID vaccine, that markets will become less volatile. A full-blown economic recovery may be years away. “While global economic activity has picked up since June, there are signs that the recovery may be losing momentum, and the crisis is likely to leave deep, unequal scars,” officials at the Washington-based International Monetary Fund said in a report published late November. “Uncertainty and risks are exceptionally high.”

With the COVID pandemic depressing consumer demand, it’s been an especially awful year for hospitality, travel, retail and energy stocks. Tens of millions of people are sheltering in place, avoiding travel and city offices. As the pandemic surges this winter, the outlook won’t change until a broadly distributed vaccine becomes available and businesses can open up again.

In the interim, being overinvested in stocks, mutual- and exchange-traded funds is an ongoing global cyclone with more investors imperiled than ever before. Investors all over the world are feeling the financial pain: Pension fund trustees for teachers, truckers and subway workers, for example, have filed suit against Allianz Global Investors, a German division of Europe’s second-largest insurer, claiming $4 billion in losses connected to the COVID-related downturn.

“The suits allege that Allianz Global Investors, in its Structured Alpha family of funds, strayed from a strategy of using options to protect against a short-term financial market crash,” according to “While the losses were disappointing, the allegations made by claimants are legally and factually flawed, and we will defend ourselves vigorously against them,” an Allianz spokesman told Reuters.

If your advisors haven’t protected your nest egg, you have grounds for arbitration cases or lawsuits against them.  Have you invested with brokers who have sold you inappropriate, high risk funds or stocks that ignore your risk tolerance? FINRA and the SEC have strict rules on disclosing risk profiles on all investments sold by brokers and investment advisers. If they fail to fully inform you of downside risk, you may have a case in arbitration.

Firms are also legally required by FINRA to monitor and supervise what their brokers are selling – their investments must be vetted and authorized by the firms – and have an obligation to investors to fully reveal true risk and return information about the vehicles sold. Investors can file FINRA arbitration complaints if these rules are broken.

If you invested with a broker-advisor and lost money as a result, you may have a claim to pursue through FINRA Arbitration. Please contact Stoltmann Law Offices, P.C. at 312-332-4200 for a free, no obligation consultation with a securities attorney. Stoltmann Law Offices is a contingency fee law firm which means we do not get paid until you do!

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