Tips for Investors in Volatile Markets
By Akhil Chugh
Date July 17, 2022
Volatility is the inherent nature of stock markets. Bouts of market volatility are an unnerving but normal feature of long-term investing. They’re not fun, but you can expect to see market declines periodically throughout your investing horizon. During such volatile times, a number of investors get into panic mode and start doubting their investment strategies. This holds true with new investors who often get tempted to pull out their investments and wait for the right time to dive back. One thing which every investor needs to know is that market volatility is unavoidable. It is the nature of the equity markets to have highs and lows even in a short duration and trying to time the market during this time is hard.
The best solution in such volatile situations is to aim for long-term investments and ignore the short-term market fluctuations. Investors should keep their focus firmly fixed on the long-term horizon and ignore knee-jerk reactions to market volatility. While these volatile periods may seem important right now, over years they become mere blips on the graph.
In this article, let’s understand some of the proven investment tips to overcome market volatility.
Some Tips for Investors in Volatile Markets
1. Don’t Panic:
The best way to deal with volatile markets is to remain calm. Stay the course. The longer you stay invested, the closer you step toward your financial goals. Stick to your investment plan, manage your temperament and be prepared to hold on to your investments for a long period of time amid volatile markets.
The market’s volatility won’t matter in the long run, but any decision you take after losing your patience will.
2. Stay Invested:
The market moves at its own rhythm and you, as an investor, move according to the rhythm of your financial planning, regardless of the market movement. Volatility, as seen in these few days, should not make you think about exiting from the equity mutual funds. Your investments are for the long term; volatility is temporary. Staying invested in the market will ensure that you can take advantage of the rally that usually follows. For instance, when the Covid pandemic hit India and markets started falling, many investors withdrew from equity. When the market rally began, markets rewarded those who had remained invested.
Timing the market’s ups and downs correctly every time is not possible. So, the best strategy is to ignore the noise and stay focused on your long-term investment goals.
3. Opt for a Systematic Investment Plan (SIPs):
SIPs are a prudent way to beat market volatility in the long run. With SIP, a certain amount of money is invested at regular intervals for a pre-defined period of time. By investing regularly, the investor is able to invest across the market cycle (both upmarket & downmarket). For each instalment of investment, additional units of the scheme are purchased at the market rate and added to your account. A SIP investor, while investing every month, would end up buying more units when markets go down and buying fewer units when the market goes up. It would help in achieving a lower average cost per unit, thus giving the investor the benefit of rupee cost averaging.
In a SIP investment, the impact of volatility is reduced and as a result, the overall gains will also increase. Rupee cost averaging works out best in choppy markets.
4. Review & rebalance your portfolio:
While broad indices were down, individual sectors might have followed other trajectories. Analyze your investment portfolio’s health and then check to see if you need to exit a specific mutual fund or do you need to top up your investments via SIP top-ups.
Also, market changes can skew your allocation from its original target. Over time, assets that have gained in value will account for more of your portfolio, while those that have declined will account for less. Rebalancing means selling positions that have become overweight in relation to the rest of your portfolio and moving the proceeds to positions that have become underweight. Reviewing your asset allocation mix regularly and rebalancing it back to the pre-defined plan is a prudent and healthy way of keeping your portfolio in shape over time.
History is proof that the equity market always bounced back post turbulence in the market. We can’t control what happens in the markets or in the economy, but we can control our own investment decisions and our temperament. If your investments align with your long-term goals, investment horizon and risk tolerance, then there may be no reason to make changes to your portfolio when the markets experience volatility.
“Choosing to stay invested can be a great option if you’re confident in your investment strategy.”
Should you wish to know more about the strategies to handle current market volatility, feel free to connect with our experts by dropping in a line at mail@netbrokers.co.in. To start your investment, install our Android & iOS application today!
Stay invested!