Ever since the election of Donald Trump, markets have been very volatile, hitting record highs one minute, and then experiencing massive selloffs the next. For this reason, it is imperative to know “how and where” when investing in a volatile market.
We are living in turbulent times.
Market volatility should be a reminder to regularly review your investments and make sure you have a diversified investment strategy that matches the overall risk in your portfolio to your personality and goals. Here are some guidelines for you to invest in an unpredictable market.
1. Stand firm: Crises happen on a regular basis and are usually of short duration.
Market crashes can be annoying, but history shows that the stock market has been able to recover from declines and can still offer investors a positive return in the long run.
In fact, in the last 35 years, the market has experienced an average decrease of 14% from highest to lowest during each year, but still had a positive annual return more than 80% of the time.
2. Be at ease with your investments
If you are nervous when the market goes down, you may not have the right investments. Your time horizon, goals and risk tolerance are key factors in ensuring that you have an investment strategy that works for you. Even if your time horizon is long enough to justify an aggressive portfolio, you have to be comfortable with the bumps you will encounter.
However, you should be mindful of not being too conservative, especially if you have a long-term horizon because strategies that are more conservative can not provide the growth potential you need to achieve your goals.
Attempting to enter and exit the market can be costly.
3. Do not try to time the market
4. Invest regularly despite volatility
If you invest regularly for months, years and decades, short-term crises will not have a big impact on your bottom line. Instead of trying to judge when to buy and sell based on market conditions, if you take a disciplined approach to investing, you avoid the dangers of market timing. Seize opportunities!
Bear Market Strategies
During a general downturn in financial markets as a result of economic uncertainty, investors rush and seek security in their investments.
There may be some actions to take while the markets are down, to help you have a better position for the long term. These strategies are complex, and you may want to consult a professional before making any investment or tax decisions.
1. Avoid positioning yourself in volatile funds or ETFs of complex nature, even more so during a full correction.
2. Say goodbye to the losers. Now is the right time to do a portfolio cleaning. If these stocks did not perform well in boom times, why would it be any different now?
3. Reduce your stock positions. If the market continues to decline, you will be able to go hunting for undervalued securities, because you will have sufficient liquidity.
4. Buy bonds. Debt securities can be great allies in the midst of bearish gaps in the market.
5. If the stock market continues to move down, try to avoid constant monitoring, as fear will make you anxious and often results in people making hasty decisions about their assets.
6. Taking short positions is one way to make money in a bear market, such as selling futures, betting on declines or helping to reduce your portfolio exposure to the market.