It’s very choppy out there in the market right now, and the value of some of your investments may be swinging wildly. It’s important to remember that investing and volatility sometimes go hand in hand. What matters most is having strategies in place to help you cope.
Read on for some epic tips to help you survive in a volatile market.
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The meaning of investing volatility
Volatility in investment terms is the ability of an asset’s price to move. A more volatile market environment or a more volatile investment means greater swings to the upside or downside.
Equities (stocks and shares) tend to be more volatile than some other investments. But, it’s this volatility that can lead to a greater upside compared to other asset classes. However, the volatile nature is also why you may get out less than what you put in if prices move in a negative direction.
It’s important to distinguish between volatility and risk and to understand that they’re two different concepts:
Volatility is how much the price of an investment can change over a period of time.
Risk is the chance or probability that investment could result in a long-lasting or permanent loss of value.
6 tips for investing in a volatile market
No one likes a do-gooder, but when it comes to investing, your money is on the line! So, to help you become an investment goody two shoes, here are six important steps to consider when times are tough.
1. Check your portfolio is properly diversified
Hopefully, you already have plenty of diversification, but it’s worth double-checking. During volatile periods, it’s impossible to predict which areas will be worst hit, and which will recover quickly.
The best way to combat this is to make sure you’re not too heavily concentrated in one company or sector. If you are, don’t panic! You may have to just ride out the storm and then rebalance things when the markets steady.
2. Consider buying shares or increasing your position
If the price of an investment is down purely due to market volatility, this can provide a good buying opportunity.
You still need to be careful and make sure there’s been no fundamental change to the business. But downward price swings can lead to better value investing opportunities.
On the other hand, a fast swing upwards might require you to be patient and wait for a better opportunity to buy shares.
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3. Keep investing regularly to benefit from dollar-cost averaging
Regular investing, even during volatile periods, can be the best way to benefit from the price swings.
Trying to time the market is an impossible task, but consistent investing no matter what’s going on can be an excellent way to smooth out your entry points.
This is known as dollar- or pound-cost averaging, and is a tool used by beginners and experts alike.
4. Make the most of your tax allowances with an ISA
When markets are volatile, you need all the help you can get.
The paper value of your investments may suffer, or they may rise up massively. Using a top-rated stocks and shares ISA account means protecting your whole portfolio from tax.
So, if prices do go on an upward trajectory after you’ve bought cheap stocks, you don’t have to worry about paying tax on your profit.
5. Check you’re using a low-cost platform that suits your strategy
In times of uncertainty, you want to make sure you’re with the right brokerage account.
Keeping your fees low with a cheap share dealing account is always wise, but some platforms will be cheaper than others based on what investment strategy you’re using.
Try using our broker cost calculator to compare fees.
6. Keep some cash to hand
Although a market with crazy price swings can be exciting and provide opportunities, it’s always a good idea to have some cash available.
If you overstretch and put all your money straight into the market, you might miss a better opportunity later. Having enough cash to one side also means you won’t need to sell any investments at what might be the worst time to do so!
Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The post 6 super tips for investing in stocks and shares during market volatility appeared first on The Motley Fool UK.
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