Strategies To Deal With Market Volatility

Strategies To Deal with Market Volatility

By Akhil Chugh

Date April 2, 2023

In the last few weeks, the stock markets have been volatile and most investors are puzzled as to how to react to the situation. Investors need to understand that fluctuations in equity market will continue owing to geo political uncertainties and other macro factors.

However, investors should accept volatility as the intrinsic element of equity investing. During volatile times, the main focus should be to look for the strategies to shield yourself during the unexpected twists and turns in your investing journey.

There is a popular adage – ‘Slow & steady wins the race.’

‘Steady’ is the word which works for wealth creation as well and is a fundamental concept of one of the most popular forms of disciplined investing methods, i.e. a Systematic Investment Plan, widely known as SIP.

Strategies to beat market volatility

Systematic Investment Plan (SIP) is a prudent approach to both beat volatility and also benefit from rupee-cost-averaging at the same time. Let’s look at some of these basic tenets that are ideal to hold on to while investing in equities during volatile times.

Strategies to Deal With Volatility:

Since volatility cannot be avoided altogether, how should you go about investing in volatile markets? Here are 5 strategies for volatile markets which are simple yet actionable.

1. Stick to Your SIPs:

First & foremost strategy is to not abandon your financial plan. Equities have known to outperform every other asset class in the long run, and it won’t be wise to miss investing in equities simply because it tends to be volatile in the interim. While the volatility of the equity markets can neither be predicted nor be tamed, a disciplined and systematic approach to invest in equities, through SIP, can surely help one sail through the equity market without worrying about the high and the low tides.

Strategies to beat market volatility

An SIP ensures that your instalments are invested through the ups and downs of a market cycle. A sharp correction in the markets can rattle even experienced investors resulting in discontinuing their SIPs. What we need to realize is that it is exactly the SIP investments done during market corrections that lead to the advantage of lower average cost per unit. Therefore, ensure that SIPs in well-chosen schemes are running as long as you have money to invest.

2. Diversify at all levels:

Diversification is key to a successful investment journey. Never put all your eggs in one basket. Try having a diversified portfolio within investment circles.

There are different diversification routes that can be opted for optimum portfolio diversification:

  1. Funds across market capitalizations: If your existing portfolio is tilted towards blue chip or large cap focused funds, you can look at funds that offer good quality stocks in the mid-cap or small-cap stocks. There are few mutual funds in the market which take exposure to global stocks as well. Call us to know more.
  2. Funds across sectors: Uncertainty related to the pandemic crisis has served as a stark reminder that discretionary spending on vacations, luxury items and other non-essential goods and services can dry up amidst such scenarios. Ensure that you invest across essential sectors like banking, health etc. Look at sector fundamentals and pick sectors that have the potential to recover quickly once the market bounces back.
3. Think Long-term:
Strategies to beat market volatility

Once you are clear that you are in the equity markets for the long run, you don’t need to worry much about the short-term fluctuations. While the markets are unpredictable in the short term, we can look at avoiding losses by having holding periods in excess of 5 years. For instance, if you had been investing in BSE Sensex, every year over the last 42 years (and hold it for a period of 1 year), there would have been 14 instances in which you would have lost money. That’s a probability of loss of 33%. If you increase your holding from 1 year to 3 years, the probability of loss reduces to 17.5%. And for a holding period of 5 years, the probability of loss reduces to 7.9%.

4. When in doubt, just do nothing:
Strategies to beat market volatility

Another vital aspect to investing amid volatility is to possess the right temperament. Here are some tips to deal with volatility:

  • Do not check the portfolio every day as it might lead you to react with unnecessary actions that could be detrimental to the portfolio.
  • When markets are volatile, keep your emotions in check and think rationally.

The basic rule is that when you do not understand the undertone of the market, it is best to stay calm and stick to your goal-oriented SIPs ignoring short-term fluctuations.

Net Brokers Takeaways:

  • Building wealth is a long-term commitment, and to do so, it is better to stick to SIP rather than trying to time out the markets.
  • Having a longer investment horizon and diversifying your portfolio across market sectors and asset classes will help you ride the market volatility and earn good returns in the long run.
  • The best way to deal with turbulent markets is to remain calm. Stay the course. The longer you stay invested, the closer you step toward your financial goals. In the long run, the benefit of rupee cost averaging in SIP can act as a shock-absorber for your investment portfolio.

It is natural to panic in a volatile market when you see your investments in red. However, it is important to continue your SIPs to take advantage of rupee cost averaging in the long run. SIPs can help you to weather market storms so stay invested in mutual funds via SIPs and embark on a journey of wealth creation.

So, get ready to benefit from rupee-cost averaging, set your goals and calculate the target amount required to invest and be consistent regardless of price fluctuations and create wealth in the long term to realize your dreams.

For more information, get in touch with us today! Download our mutual fund app & start investing for your long-term financial goals.    

Stay invested!