11 Tips for Investing in a Volatile Market

Investments are not guaranteed. And in a market that will always have its ups and downs, experiencing a dip or a loss in value is inevitable. Despite other claims to the contrary, you can’t time or control the market. What you can control, however, is how you react to changes in the market, and what strategies you choose to adopt when the market is volatile. Read on to learn more about how to invest in a volatile market.

How to Invest in a Volatile Market

If you are already in the throes of market volatility, it can be hard to keep a level head. To prevent that, here are some things to keep in mind as you attempt to navigate investing in a crazy market.

1. This Too Shall Pass–Ride It Out

If there is such a thing as a golden rule for the stock market, it’s this: when the market loses ground or value, don’t panic and sell everything! Remember, the economy is cyclical–there are always going to be ups and downs. Therefore, there is expected volatility. Even in typical market conditions, the market might go down 10% in a given year. Sometimes the market might drop 20% at one point, but end up having only dropped 10% in the year overall.

The number one tip you will probably hear with regards to stock market volatility is don’t pull your investments. When stock prices appear to be plummeting, you may be tempted to pull them before they go even lower.

The best thing to do is just ride it out.”

The markets could improve very rapidly, and you’ll regret pulling your stocks if their value is restored or even increases over time. The best thing to do is just ride it out, as anxious it may make you feel.

2. Avoid Day Trading

Day trading is when you rapidly buy and sell investments with the hopes of making profits from small price fluctuations. While this may seem like an easy, low-stakes way to garner some profit, it is actually very time-consuming, difficult, and risky. Day traders need to develop a system for tracking stocks and trades, constantly monitor the markets, and have a knack for knowing exactly when it is the best time to buy or sell–it can easily become a full-time job.

And unless you know what you’re doing, day trading can also result in substantial losses. There are also financial consequences: gains and losses on day trading activity are still subject to taxes and are actually taxed at a higher rate than some investments that are held long-term (like retirement funds, etc).

3. Keep Good Track of Your Investments

When you invest in a lot of different asset types, it can be easy to lose track of what you have invested where. If you’re unsure of where your investments are and why you chose those specific investments, it will be difficult to know what to do if the markets go down. Knowing why you made a specific investment makes it easier to determine if that reason still holds even if the market goes down. If you don’t already, it is a good idea to have a trusted financial advisor who can help you manage your assets and give you advice.

4. Learn from Your Mistakes

No investor is right 100% of the time, so don’t beat yourself up about past decisions. You made the choice that seemed like the best option at the time–and if it didn’t work out as you’d hoped, the best thing you can do is learn from it and move on, instead of trying to aggressively course-correct.

5. Diversify Your Portfolio

Diversifying your portfolio of investments is one of the best ways to keep yourself calm and your overall investments stable during a volatile market. Diversification means that your investments are spread across different asset types, spreading out your risk. Often, one investment sector will be going through a downturn while another investment sector is going through an upswing. If you diversify, those ups and downs will balance each other out. It also limits substantial loss if something catastrophic should happen to one of your investments.

6. Dollar-Cost Averaging

Dollar-cost averaging is an investment strategy in which you invest a set amount of money at regular intervals, which allows you to reduce the overall cost of your investments, as you “smooth” your purchase price over time, and ensure that you are not investing all of your money at once at a high price point.

7. If You Must, Make Small Changes

If you do feel the need to make changes in your portfolio, don’t rush to do anything drastic. There are ways to make changes without totally overhauling your portfolio.

If you must, make small changes.”

You could start by reallocating a small percentage of one of your assets to another, as a way to test the waters. You could also put any new money into investments that are positioned to do well in the future, while leaving your current investments where they are. You can also set an informal threshold for selling during a downturn: a minimum limit to be reached before you sell a stock or investment. But remember the golden rule: no panic-selling!

8. Consider Adopting a Defense Strategy

During volatile times or bear markets (where securities fall for a sustained period of time), some investors will take a defensive approach to investing, diverting funds to sectors like consumer staples or utilities. Even these sectors, however, are not immune from overall market changes. Still, they will likely be more steady, and dividends from these investments can help offset the impact of price swings of riskier investments.

9. Continue to Save

If the value of your current investments is fluctuating, you should still try to regularly add to your investment accounts. If you offset your losses with some new savings, your bottom-line number won’t look as discouraging, and will help ease your anxiety around future volatility and the value of your investments.

10. Always Have Cash on Hand

You should avoid putting yourself in a situation where you need to sell stocks to meet your ordinary expenses. No matter how smart or thoughtful your investment strategy is, you should have a cash cushion to ensure some degree of stability and allow you to relax a bit and make thoughtful decisions. Also, if you have plenty of cash on hand, you may be positioned well to take advantage of a downturn by picking up bargain investments.

11. In Retirement, Focus on Protecting Assets

If you are in retirement, or near entering that phase of life, your approach to investing in a crazy market may look a little bit different. Your focus should be on protecting the assets you’ve accumulated from long term investing, rather than trying to be bullish and going after big returns in the short term. To stay committed to this, develop a road map for retirement investing before you even leave the workforce, to avoid making emotional decisions with your investments during extreme market events.

Help Protect Your Investments During Volatility

We know how important it is to keep your retirement or investment portfolio steady. A financial advisor can be an important asset as you plan your investments, making sure you have the right tools you need to accomplish your financial goals. Talk to Amplify Wealth Management, available through CUSO Financial Services, L.P.*