Tips to Adapt in a Volatile Market

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Market volatility refers to periods of extreme and rapid price swings. The degree of change that takes place in prices is called volatility. Most investors, are aware that the market undergoes periods of both, bull runs and bear runs. Investments are never guaranteed and the market is characterized by ups and downs. It is not possible, to monitor or control the market but it is possible to sail through the journey and make the most out of it.

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”- Warren Buffett.

When volatility rises, it might be possible to generate an above-average profit but there is also a risk of losing capital in a relatively short period of time. Thus, it is important to handle market volatility smartly and with a disciplined approach.

Here are a few tips that you can adopt to make your journey easier in a volatile market-

1.     Do not set Unrealistic Expectations

While dealing in the stock markets, it is very important to set realistic expectations. Short-term market fluctuations can lead to a plenty of emotions but in such cases, it is necessary to take a step back and look at the long-term picture. One should set realistic expectations of the stock market and its volatility as it can create a positive opportunity for them and their investments.

2.     Diversify your Investments

Higher market volatility brings along higher risk. The solution is to have a diversified investment strategy so that, all your investments are taken care of in a way, that they meet your goals and enable you to generate wealth in the long run. Diversification is key to making right investments and it spreads your investment across various asset classes, thereby spreading out the risk.

3.     Adopt the Dollar-Cost Averaging Strategy

Dollar-cost Averaging refers to an investment strategy wherein you invest a set amount of money at regular intervals. This allows you to reduce the overall cost of your investments and ensures that you are not investing your entire money, at a high price point.

4.     Do not stop your Systematic Investment Plan (SIP)

It is an absolutely unnecessary move to stop your SIP investment, during a volatile market. Bearish market is in fact the time, when you can average out your cost of acquisition. During this time, if you stop your SIP, you miss out on the benefit of compounding. Always remember, that equity yields best returns in the long run. Thus, you must always stick to it.

5.     Do not indulge in Bottom Fishing

Bottom fishing refers to the act of buying, when the market is low. Buying, just because some stocks are available at a low price does not mean, that they will rebound in future. Some names may appear very attractive but they may be a value trap. Thus, you must undertake a careful examination, in case of each stock.

6.     Make changes, if required

Volatile markets should not be taken as a negative sign always. If you feel that you need to make some changes in your portfolio, do not rush into anything and gradually make those changes. You can reallocate a small percentage, of one of your assets to another or you could put new money, into the investments that are available at a fair price. Test the strategies and see what works best for you.

7.     Maintain your Emergency Fund at all times

The size of your emergency fund will vary depending on your age, lifestyle, income and costs. However, under all circumstances, you should maintain an emergency fund because it acts as a financial buffer, that can keep you from selling your investments when the stock market is down. Emergency funds will give you a sense of security even when the markets are volatile.

8.     Adopt a Defense Strategy

During bear markets, investors should take a defensive approach towards investing. For example, investing in sectors like consumer staples, FMCG, pharmaceuticals etc. can enable you to earn a steady growth. However, one should have the knowledge, that these sectors are also not completely immune from the overall market change but at least they will be steadier. Also, dividends from such investments can help offset the impact of the volatility, that is faced in riskier investments.

 A financial advisor can be of great help to advise you in times of market volatility. To know more about investing in Volatile Markets, preparing an investment strategy and drawing trading plan while keeping risk in mind, connect with mastertrust today.