The decision to invest is an acknowledgment that it comes with certain risks. Not all investments will do well and some may even lose money. However, without risk, there would be no opportunity to help you grow your wealth. Investing is a great way to create wealth, but no investment comes without risks. When we say risk we mean market volatility, which people have no control of.
What is Market Volatility
Volatility in simple terms is the rate at which the price of a market or security changes over time. People often think about volatility only when prices fall, however, volatility can also refer to sudden price rises too.
It’s the statistical measurement given to the market index, which refers to how consistently or inconsistently the investment performs. For example, the rise and fall of the stock market over a given period make it a volatile market.
This situation is absolutely normal, especially in terms of investment, and it will continue to rise and fall in cycles, investors will experience gains when conditions are good and prices rise, and negative events can trigger a loss when prices fall.
As the volatility increases, the potential to make more money also increases. However, it is not always good news, for the higher the volatility, the higher the investment risk. If the asset prices drop, it may be a loss for the investor, but it could also be a good buying opportunity for those who want to invest in the product.
In essence, market volatility can be a good thing or a bad thing for an investor. The situation depends on who views it and how they work around the market’s movement.
PLAY AROUND WITH THE SITUATION
There is nothing you can do with market movement, however, there are some better ways you can learn how to go with its flow.
Diversify Your Investments
As the saying goes, you should never put all your eggs in one basket. Doing that for your investment can help you take better control of your assets. If you have the money, consider spreading it over different types of investments.
The idea is that if one investment loses money, the other investments will make up for those losses. Diversification can’t guarantee that your investments won’t suffer if the market drops. But it can improve the chances that you won’t lose money, or that is you do, it won’t be as much as if you weren’t diversified.
Bear in mind, having a lot of investments does not make you diversified. To be diversified, you need to have lots of different kinds of investments.
Look at the Situation from Another Viewpoint
You can’t predict the rise and fall of the market, and it will only stress you out to keep an eye on its movement all the time. Let your financial planner take care of the minor details for you. Instead of focusing on these small movements, it would be best to see your investments from a long-term perspective.
While there are constant ups and downs, if you look at your assets in a long-term time frame, you would notice the progress and see how your money continues to grow.
Turn a Problem into an Opportunity
When the facts change, we change our minds- this is common to us.
Instead of changing your investment strategy abruptly during unstable times in the market, what you can do is find the opportunity in every problem.
When your asset is at its lowest, you could consider investing in it further and wait until it grows back to its highest value or more. If you have a solid investment in place, stick to it and ignore the noise. You should seek the guidance of your financial adviser before proceeding with further investments.
Stick with your Comfort Zone
When planning your investment portfolio, it’s important that you only expose yourself to a level of risk that you are comfortable with. Typically, if you’re nearing retirement, you are more likely to invest in defensive aka lower-risk investments to protect the nest egg they have worked so hard to accumulate. If you just entered the job market as a 20-something, you are more comfortable with taking risks and investing in growth assets as you have more time to make up losses.
Our rule of thumb is “the sleep factor” – if market volatility and your portfolio are keeping you awake at night then you should consider lowering your risk exposure.
The market is unpredictable, and the only way you can deal with it is to understand and accept that fact. When you learn how to dance to its music, that is the time you can find the best strategy to grow your money.
Because investing can be complicated, consider working with a financial professional to help guide you on your wealth-building journey.