Volatility has seized Indian equities markets as a result of factors such as an increase in coronavirus infections in the nation, rising oil costs and supply worries, growth and liquidity concerns, and a suspension on the faltering Yes Bank, among others. One of the most common reasons investors sell their investments at the incorrect moment is because of volatility. In times of uncertainty, it’s normal for an investor to want to sell to avoid more losses, and this can lead to impulsive judgments. Let’s take a look at some of the best investment techniques for a turbulent market.
Market Volatility: What Causes It?
When investors are afraid or apprehensive, market volatility rises. Both can happen as a consequence of a downturn in the economy or as a result of geopolitical events or natural disasters. Because of the credit crisis in 2008-09, which triggered the Great Recession, market volatility increased. When Russia invaded Ukraine in 2022, it also saw an increase in demand.
7 Investment Strategies for Volatile Markets
1. Risk Control
Risk management may be one of the most effective tactics, particularly during periods of stock market volatility. Being aware of such scenarios might assist you in minimising your losses. Volatility also leads stock prices to decline, providing a chance for investors to add more equities to their portfolio. If you own high beta stocks, you may simply minimise your risks by switching risky equities for safe ones.
2. Maintain your Financial Strategy
That is the first and most important thing to remember. When you look at the VIX chart for the previous 9 years, you can see that it has been on a secular downtrend. However, there have been at least 8-10 times in the interval when the volatility has soared significantly. The main point is to stick to your long-term financial strategy. This strategy is geared at your long-term objectives and includes some built-in risk management features. The systematic investment plan (SIP), for example, is meant to take advantage of market volatility. SIPs are critical to ensuring that the power of compounding works in your favour since they are the foundation of your financial strategy.
3. Quality is Excessive; Danger is Inadequate
This relates to your stock and mutual fund holdings. You tend to pile up on mid-caps, small-caps, sector funds, theme funds, and so on when the markets are on a roll. When markets are turbulent, avoid taking on too much concentration risk. Second, look for stocks with a history of good corporate governance and transparency. In a tumultuous market, they’re your safest bets. Finally, concentrate on high-growth equities, firms with strong margins, and industry leaders. In times of market volatility, they are the most likely to outperform.
4. Have Money in your Pocket
It isn’t required to invest all of your money in the stock market. Keep some cash on hand in case the stock market becomes volatile. When the stock market is volatile, the stock price falls dramatically, and this is when having cash on hand comes in useful. Buying shares at a low price might help you make big money in the long term.
5. Keep your Budget in Mind
This is the most important thing to keep in mind. The VIX has been on a secular down-trend for the past 9 years. However, there have been at least 8-10 times in the interval when volatility has increased significantly. The key is to stick to your long-term financial strategy. This strategy is geared at your long-term objectives and includes certain built-in safeguards to mitigate risk. SIPs, for example, are designed to take advantage of market volatility. SIPs are critical to ensuring that the power of compounding works in your favour since they are the cornerstone of your financial strategy.
6. Stay Diversified in your Asset Mix
How do you manage your asset mix when markets are volatile? There are certain assets that do not display the same degree of volatility as equities during volatile times. For example, debt markets tend to be more stable when equity indices are volatile. So debt in your portfolio adds stability and the assurance of regular income. Similarly, gold tends to normally benefit from macroeconomic volatility. So increasing you exposure to gold via gold ETFs can also be meaningful in these volatile times. The moral of the story is to stay diversified in your asset mix to beat the volatility.
7. When in Doubt, be Silent
Traders commonly assume that there are only two trading tactics to master: buying and selling. Actually, there is a third option: doing nothing. The allure of fishing in problematic works might easily entice you into the market during unpredictable periods. The general guideline is that if you don’t comprehend the market’s undertone, you should remain out of it. Staying out at the correct moment and doing nothing may be a crucial element of strategy in unpredictable markets!