To invest or sell in a volatile market.

How to invest in a volatile market

The watchword in recent times for investors is uncertainty, which is certainly creating a volatile market. Recently, it was stated somewhere that uncertainty is the only certain thing right now in the world’s economic market. As you try to gear up and adjust to one news, another news is setting in. 

Market volatility has reached new highs as a result of the Russia-Ukraine war, inflation, and an increase in interest rates by the Fed. Increased volatility implies that the market will experience large “up” moves, resulting in the creation of trillions in wealth. That’s why it’s so enticing for investors to start gambling on these huge fluctuations in the hopes of profiting from market timing.

Before we proceed to strategies to apply when the market is volatile, let us understand what a volatile market is. 

What is a volatile market?

Intense activity and wide and quick price changes are some of the characteristics of a volatile market. They can be the outcome of a trade order imbalance in one way (for example, all buys and no-sells).

Economic releases, company news, a recommendation from a well-known analyst, a popular initial public offering (IPO), or unexpected financial results, according to some, cause volatility in the markets. Others blame day traders, short-sellers, and high-frequency corporations for the volatility.

Now, let’s highlight four strategies to adopt when investing in a volatile market, especially if you are a long-term investor. 

Know what you own

“Know what you own, and know why you own it,” Peter Lynch says. Why should you invest in a firm if you have no idea what it does? Furthermore, investing in your friends’ projects or the latest meme stock just because it’s popular may not be the greatest option for you.

Fortunately, Seeking Alpha’s research, news, and quantitative ratings can help you comprehend your investments right away. Stick to your investment plans and risk tolerance, and stay on track to meet your objectives. Choose stocks with solid fundamentals that will pay off in the long run.

Stay Invested-Think Long-Term. 

Market volatility is usually short-lived, so it’s usually a good idea to keep your money invested. Pulling that money out of the market is a risk that should be carefully considered because you risk locking in losses if you do so.

The importance of staying involved stems from the fact that, historically, the best days in the market follow the worst days, and timing the market with precision and accuracy is impossible.

According to J.P. Morgan’s Guide to Retirement (GTR), the impact of being out of the market is one of the largest detriments to portfolio returns. Loss aversion and trying to time the market are two of the biggest detriments to portfolio returns. Keep your money invested and consider the long term.

Diversify your portfolio and focus on good companies.

As the markets recover, you may be able to select stocks with reasonable valuations that are trading at attractive prices but have suffered a price drop due to market volatility. Top dividend stocks with secure dividends provide a safety net against the market’s downturn.

Finding high-quality firms’ stocks with sustainable growth, excellent valuation frameworks, substantial profits, favourable earnings revisions, and strong momentum relative to peers is the key to long-term investing. Companies with a solid track record of earnings growth and high earnings quality are what you should be looking for.

Find resources and tools to educate yourself

People are more likely to make emotional investment decisions when they are scared, so they trade frequently during volatile periods. “When you buy a stock, you have to be prepared for it to go down 50% or more and be comfortable with it, as long as you’re comfortable with the holding,” Buffett says.

There are a plethora of stock market investment research and analysis websites that provide useful information. At Volition, we have created an investment course that will prepare you for different investment and market situations. We have also made it available to you for free. Sign-up by clicking here. You can also sign-up for our newsletter, where we share market updates and other investment opportunities available to you. Sign-up for our newsletter here.