Market volatility is not a new concept for the investors. Volatility technically means the standard deviation of the instrument returns from the mean. In simpler terms, the change in the prices of invested instruments/ stocks during a particular period is known as volatility, which you will definitely face in market investments.
Moreover, volatility affects investors when the stock market shows a downtrend for a extended period. These days, such a downtrend can be seen due to the Russia-Ukraine war, crude oil prices, geo-politics, high inflation, change in interest rates and Adani group related news. In such a market, here are the five things you can do to secure your money:
1. Stick to your long-term financial plan: Temporary downtrends and market volatility doesn’t alter your financial goals. Any emotional decisions could only worsen your financial situation. Hence, stick to your financial plan until you achieve it. Focus on long-term investment plan enables you to overcome all the short-term adverse market situations, and further market recoveries help you create wealth.
2. Diversified portfolio: All investment assets do not move in the same direction and at the same rate. Therefore, investing in a well-diversified portfolio according to your risk appetite is the key to overcome short term market volatility. To illustrate: Suppose your portfolio asset mix has a portion of equity, debt and gold. In that case, during volatile equity market phases, debt and gold would be expected to give you a positive returns. As investors normally tend to shift their focus toward fixed income and physical assets when stocks become highly volatile.
3. Possible opportunity for discounted share prices: Suppose you have a few stocks in your watchlist that are fundamentally strong enough to sustain and give handsome returns to achieve your financial objectives. You might buy those stocks at a very lower price than before. An economic downturn and adverse news flow might be an opportunity for you to buy your favourite shares trading at discounted prices.
4. Utilise the power of SIP and convert crisis into Opportunity: SIP mode of investment is ideal in market corrections or extended downturns and leverage the benefits of rupee cost averaging. During the downturn, the share prices of the assets/ stocks fall, and thus you can get more units/ shares for the same amount of funds. This is how you can convert the volatile times to opportunities.
5. Doing nothing is also a better option: Empirical data indicates that after all major corrections and periods of consolidation, new up moves have always been led by new stocks, sectors and themes. Hence, aligning of investments is a must to generate alpha and optimise returns. However, if you are new to your investment journey and confused about how to react to the prevailing conditions. You can either contact a trustworthy advisor or just sit back, relax and keep your investment as it is. Though, it could be a riskier option as you might have invested in few fads/ new companies which require a rethink/ exit, but doing nothing is less risky than selling in panic.
Key takeaways: Patience is the key to a successful investment journey. When you have a proper financial objective for an investment, you tend to lose less as you can keep calm. The second and most important quality for an investor is consistency. If you are consistent enough in your investment, you will be able to create wealth with the help of the magic of compounding.
By implementing the above mentioned points in times of volatility, you can not only keep your hard-earned invested money safe but also optimise your financial plan.
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