Investing during a volatile market can be nerve-wracking and highly daunting. The rapid fluctuations in asset prices, economic uncertainty and fluctuating investor sentiment can overwhelm even the most experienced of investors. However, with the right strategies and proper perspective, it’s possible for your investments to survive — and even to thrive — while in a volatile market. Here’s what you need to know about investing during an unstable market and strategies to help you successfully navigate the uncertainty.
What is market volatility?
First, let’s define the term we’re exploring. Market volatility refers to the rate at which the price of assets increases or decreases for a given set of returns. In a volatile market, prices can swing dramatically in a short period, often due to economic events, changes in investor sentiment or unexpected news. While volatility can present risks, it also offers opportunities for investors who know how to navigate the ups and downs.
Strategies for investing in a volatile market
Here’s how to enable your investments to thrive in a volatile market:
- Don’t pay too much attention to the news
Yes, as a responsible investor, you need to keep up with the latest developments in the economy and stock market, but it’s also important to know when to ignore the latest headlines and doomsday predictions that can dominate news cycles. The market will fall and then pick up again many times over the life of your investments, and there’s no need to get all worked up every time your investments take a dip.
- Clarify your investment strategy
When the market is unstable, it’s a good idea to use this opportunity to ensure you have a solid investment strategy in place. Review your time horizon, your investment goals and your tolerance for risk, and then ensure these haven’t changed too much since the last time you evaluated it. If they have, consider making the necessary adjustments to your investments to have them better reflect your desired strategy.
- Diversify
Diversification is a crucial strategy for managing risk in any market, but it’s especially important during times of volatility. By spreading your investments across multiple asset classes, industries and geographic regions, you can reduce the impact of any single investment’s poor performance on your overall portfolio. For example, if the stock market is experiencing turbulence, having investments in bonds, real estate or commodities can help balance your portfolio and mitigate potential losses.
- Keep cash reserves
Having a cash reserve can provide you with the peace of mind you need to weather a financial storm. Cash acts as a buffer, allowing you to cover short-term needs without having to sell investments at a loss. Additionally, having cash on hand can position you to take advantage of buying opportunities when asset prices are depressed. Of course, a cash reserve doesn’t have to mean a lump under the mattress. Instead, you can keep your emergency fund in a credit union account you can access at any time. With deposits of up to $250,000 insured by the NCUA [and privately insured up to $xxx], your money is safe regardless of the state of the market. Speak to an [MSRP] at to find out which of our checking or savings account options can be a good fit for your cash reserves.
- Regularly review and rebalance your portfolio
In a volatile market, the value of different assets in your portfolio may change, leading to an unintended shift in your asset allocation. Regularly reviewing and rebalancing your portfolio ensures that it remains aligned with your risk tolerance and investment goals.
Volatile markets aren’t for the faint-hearted investor, but they don’t have to be a reason to panic or to resign yourself to a string of losses. Use this guide to help your investments survive, and even thrive, in an unstable market.