How to Manage Your Investments in a Volatile Market

For the first time in 11 years, volatility has rocked the stock market and stocks have greatly plunged recording their worst performances, yet. History is being made once again and like other economic declines, investors seek ways to protect and manage their investments. Though there are a lot of uncertainties attached to the current economic decline, the good news is that like the other, the Covid-19 pandemic will come to an end.

As far as reality is concerned, the Covid-19 pandemic would continue to ravage the economy and impact every aspect of life. This crisis is far beyond the stock market.

Investing in volatile markets

It is quite normal for the stock market to experience sharp climbs and sharp drops as a lot of economic issues and government policies affect the stock market’s performance on a daily basis. However, there are times where high volatility rocks the stock markets and many investors are caught between panic selling or staying calm till the rampage is over.

Watching the market performance may be somewhat of a roller coaster of emotions for many investors especially those with low-risk tolerance. Sadly, some of these investors out of fear of losing money rush into panic-selling of their investments. The result of short-term selling out of fear of losing money could lead to long-term financial loss.

Big-time investors like Michael Burry are of the opinion that investors should remain calm in such volatile times as “the virus is a temporary problem.”

“I am still 100 percent focused on stock-picking, and there are lots more opportunities today,” he added.

Investing in volatility requires that investors stay calm and follow through till the end especially long-term investors. Although, it may seem difficult and uncomfortable sometimes even as the coronavirus pandemic continues to ravage the US and global economies. Investors can take advantage of this period to build wealth and achieve long-term financial success by learning how to stay calm in volatile times.

According to Robert Johnson of The American College of Financial Services, Pennsylvania, all investments have risks attached to them, notwithstanding, they are still worthwhile. And volatile times are bound to happen at different intervals. He also opines that “the way to build wealth over the long run is to prudently embrace risk in the equity markets.”

There two ways low-risk investors can invest in volatile markets and remain calm in volatile markets.

1. Diversify your portfolio: Portfolio diversification is a common investment practice that enables investors to include different securities or investments in a single portfolio. The purpose of this is to keep an investor’s investments within a portfolio functional even when a single investment plunges. If a particular investment gets stuck in a volatile market and it seems like you’re losing money, the loss in that particular investment would offset in gains in other investments. Since this is a common practice, it is well assumed that many investors thread this path.

2. Take the long-term approach: Long-term investments would help you build your wealth in the long run. Some investments bear more yield when left for a long time, volatile markets may tend to cause panic among investors, but long-term investors would have better results at the end of the volatility if they remain calm.

According to Brad Kingsley, a personal finance coach in South Carolina, “money invested for short periods of time has much higher volatility and risk.”

“People who ‘stick it out’ for at least 15 years— preferably even longer—tend to have the best results from their investing,” he said.

Tips for investing in volatile markets

#1: Understand your risk tolerance: Some investors have high-risk tolerance while others have low-risk tolerance. If the sharp drops and rises in the stock markets affect how you feel, then you probably have a low-risk tolerance. Investors in this category tend to panic when the market plunges. With every investment comes risks, therefore, to manage your risk tolerance on your investments, it would be best to diversify your portfolio. That way the loss in an investment can offset gains in another.

#2: Rebalance your portfolio: This would help you determine the investment opportunities you would like to include in your portfolio based on your risk tolerance. Sometimes, bonds may be down and stocks up and vice-versa. By rebalancing your portfolio, you would be able to determine from time to time if you want to use the profits from stocks to buy more bonds or sell a few bonds to raise cash for an emergency fund.

#3: Make use of dollar-cost averaging: By doing this, you will be able to invest a set of amounts at set intervals, either weekly, bi-monthly or monthly. The dollar-cost averaging would help you control the amount of money that is at risk should in case volatility hits the market.

#4: Avoid daily check ins: In as much as daily check ins let you know how much you have gained, they also let you know how much money you are losing daily. This also causes panic among low-risk investors. Avoiding daily check ins during volatile times would help you lower any chances of panic. Investors in this category can instead opt for quarterly check ins instead.

#5: Maintain a positive attitude: A positive attitude would help you look at the bright side of things. Financial markets always recover from short-term volatility, therefore, maintain a positive mindset towards the turn of events would help you keep up hope of benefiting from the market when it stabilizes—no matter how long it may last. Keep a long view of your investments in mind!

#6: Employ professional services: It is well known that investment professionals such as a financial advisor offer a variety of services that can help investors rebalance their portfolios and also, recommend investments that fit an investor’s portfolio. Asides giving financial advice, a financial advisor can also help you as an investor remain calm during volatile markets by ensuring that fear of losing short-term money doesn’t get in the way of long-term benefits.

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