How to deal with stock market volatility?
01 Jun 2017
Nutan Gupta
New Page 1
A stock market drop can be an unnerving experience at any stage of
life. It could have a financial as well as an emotional
impact on the investors. Many investors tend to get baffled and take haphazard decisions
to ensure the safety of their investments. But, if anything needs to be avoided in such a situation, it would be taking haphazard decisions. What is the best way
to deal with it then? Well, let’s first understand what exactly volatility is and
then move to steps how you can deal with it efficiently.
What do you mean by volatility?
It means a sudden rise or fall in the market or any such security in a
short tenure. It can be measured by standard deviation of return which means the amount of
variation or deviation than expected. This causes heavy trading and wide price
fluctuations. Everyone either tends to buy or sell in a volatile market.
How can you deal with it?
Stay invested: Don’t let short-term losses take over the
better you. Avoid taking decisions in the spur of the moment and stay invested. Focus more
on your long-term goals and don’t let the daily imbalance have an impact on your
returns. Planning for future might help you gain as well.
Don’t abort your plans: A sudden movement in the market might
have different implications for those who just started investing and other professionals.
Don’t change your investment strategies by hitting the panic button every single
time. Reassess your goals, time to achieve and your plan to ensure that you are still on
the right track. The idea is to change course when needed rather than to abort the
mission.
Diversify assets: The best way to deal with stock market volatility
is to diversify your assets. Help your portfolio to modify according to the need of the
hour. A good mix of equity and debt funds can give you a more balanced approach than just
going all equity in such market. Ensure you have your safety net in place before you
plunge into the volatile market.
Do an active risk management: Desperate times call for desperate
measures, they say. Don’t indulge into passive investing at such volatile times. Take
the control in your hand to drive your investments towards growth. Adjust your investment
portfolio on the basis of your risk tolerance. This would make you money as well as secure
your future if the market decides to crash abruptly.
Consult your financial advisor: Talk to the professionals when you
feel things are getting a little out of your own hands. Financial advisors can guide you
by assessing your portfolio with other factors and suggest steps you need to take. They
can also help you with a detailed financial plan if you wish to take some help in that as
well.
Some other factors that would help you survive the volatile markets
include:
-
Ensuring that all your essentials are insured or covered
-
Having cash handy as a shock absorber if markets crash
-
Having a strategic plan with reference to your investment income.
This could mean creating a withdrawal strategy too
-
Adjusting your withdrawal rate that helps you navigate through the
downslide in the market
-
Having backup temporary income sources as alternatives handy
To sum it up
Stock market volatility is a part of the market and there is nothing that you can do to
avoid it from occurring. But with these tips, you could certainly try to protect yourself
and your investment from losses as far as possible.