Many investors start to question their investment strategies when the market experiences dramatic moves. Novice investors are usually tempted to run for the exits when this happens. They may even sell their riskier investments temporarily and wait until it is safe to come back.
What you need to realize is that volatility is the nature of asset markets. All investments portfolios are bound to experience large and uncertain fluctuations in their prices from time to time.
Seasoned investors believe that stocks provide some of the most lucrative returns during volatile times. They recommend buying more stocks or not pulling out as there is a sense that stocks get cheaper with turbulent markets.
Instead of going into flight mode and worrying about your money, always be prepared. Having an investment plan that is well defined and tailored to your current financial situation and goals can keep you ready for the ups and downs of the market. This way, you will be ready to take advantage of opportunities as they arise.
The following tips will help you keep your perspective during volatile time;
Have a clear investment strategy.
The key factors that you will need to reexamine to determine if you have an investment strategy that works for you are; your time zone, goals and tolerance for risk.
To determine your time zone, count the number of years left for you to retire. Your main goal is to accumulate enough savings in order to create the income needed for retirement. Your tolerance to risk is determined by your current financial situation in terms of your income, savings and debt and more importantly how you feel about all this.
This not only helps you have the bigger picture but also it helps clarify the investment strategy for you.
Match your investments to your comfort level.
Make sure you can handle the short-term ups and downs that you will most likely encounter. Think about reassessing your investments if watching the balances fluctuate is too much for you. You should set realistic expectations too so that you will be able to stay true to your long-term investment strategy.
Review your investments and ensure your investment strategy is expose to different sectors of the market. Spread your investments across three asset classes that include; short term investments, stocks and bonds. Within each asset class, diversify the investments to help offset the risk. Always remember that diversification does not guarantee against loss.
Investing regularly makes short term slumps have less impact on your overall performance. Instead of relying on market conditions to determine the right time to either buy or sell, invest weekly, monthly or even quarterly. This disciplined approach helps you avoid market timing.
Market volatility is inevitable. Timing the market is difficult for you cannot consistently predict the good days from the bad. Trying to move in and out of the market can also be costly.
The solution is to have a long-term investment strategy and focus on it while ignoring the short-term fluctuations. This will be a solid way to help weather volatility.