Tips for Investing in a Volatile Market

Financial investment is something that should be done according to your individual situation. This might mean how old you are and where you are in life, and to that point TK Business Magazine has posted about investment plans for different stages of life before. It might also mean what your income situation is, or how secure you are in your job. And it will certainly relate to what responsibilities you have financially, or what your investment goals are. 

No matter what your personal situation is, though — whether you’re a recent graduate looking to establish savings, an adult looking to build a portfolio, or an aging investor focusing on retirement — a volatile market can introduce challenges. This has become relevant for people in Kansas and all over the United States in the first half of 2020, with the economic crash having led to some fairly dramatic market fluctuations. So for any readers questioning how to handle the situation, we want to provide some tips.

Keep Your Emotions In Check

It’s common advice to investors: Don’t let your emotions dictate your financial decisions. And it’s particularly important advice during times of high volatility. When the market crashes, or stock prices fluctuate dramatically, it’s vital to get a grip on your emotions and avoid being influenced by panic or excitement. 

A panicked investor in a market crash may wind up selling assets for a dramatic loss with a rebound (even if only a mild one) just around the corner; an excited investor might get caught up in the idea of a buying opportunity after a crash and commit too many resources to stocks at low prices. This is not to say you should simply stay put in volatile times. But whatever decisions you make should be purely strategic, rather than hasty or emotional. 

Establish Limits

Depending on where you’re invested or what platform you use, you may have the option to set automated limits on your investment. This is something that’s sometimes associated with CFD trading, which is a form of investment in which traders buy into the idea of a stock rising or falling over time, but don’t actually trade the stock. As one overview of CFD trading puts it though, you can control your profits and losses through stock trading tools on the better platforms out there. This can be the case in other forms of investment too, allowing you to establish in advance that if the value of an asset you’re trading reaches a certain limit (high or low), you cash out. 

Automated limits are incredibly convenient in a volatile market. Even if you don’t have that option though, it can be wise to set your own limits in times of high volatility. They might keep you from holding on too long in unpredictable market conditions.

Consider Diversifying

Like controlling emotions, diversification is a commonly recommended strategy for investors in general. But the idea behind it can be particularly worthwhile during times of increased volatility. 

Essentially, diversification is meant to spread out risk (and to some extent, potential for reward). When you’re invested in a single stock, or multiple stocks in a given industry, you risk losing the bulk of your portfolio if something goes wrong. When you spread your investment out across different assets and categories though, you stand to lose less if one or the other experiences a crash. A dramatic loss, or a net loss for your portfolio, becomes less likely, in theory. 

Look Into Mutual Funds

A volatile market makes for a somewhat difficult environment for those looking to make significant changes. However, it can also be a good time to explore mutual funds, which are more or less group portfolios in which money from multiple investors are traded by experienced professionals for a small fee. 

Some of the benefits that come with mutual funds are automatic diversification and expert management, both of which can be particularly valuable in a difficult market. A mutual fund will be diversified for you, and the person managing the investments will be doing so professionally. That still doesn’t guarantee success, but it may make for a more stable situation than managing your own portfolio. 

Hopefully these tips have helped you to think about how you might manage any investments you have during this unpredictable time. We know that 2020 has been a difficult time financially for many in Kansas, and volatile markets certainly don’t help. In the end, investing decisions should still be made personally and with regard to your specific situation. But these general tips can be helpful in navigating a tricky market.