Navigating Market Volatility: Fipro’s Expert Financial Strategies

Market volatility is inevitable, but that doesn’t mean it isn’t always concerning. Let’s discuss & explore some important tips and insights that may help you navigate market volatility smartly and strategically.

Volatility in the stock market may be advantageous despite the unavoidable anxiety that comes with it. Corrections act as a “pressure release valve” when equities markets surge too quickly and are a normal and necessary aspect of the market’s cyclical structure.

The S&P 500 fell roughly 57% during the 17-month bear market from October 2007 to March 2009. But it quickly recovered, finishing 2009 with a 26% gain. More subsequently, the Dow Jones Industrial Average lost 37% of its overall value in the first month of the COVID epidemic (from mid-February to late March 2020). Still, it recovered and rose again by 43.7% by the end of the year.

A thorough strategy can assist in painting the wider picture, refocusing on the long term, and describing the various aspects of achieving your goals, not only your investment returns.

4 Tips For Navigating Market Volatility

1. Keep your long-term goals in mind

Over time, those who commit to riding out the storm by being steadfast and committed to their long-term investing strategy when markets become erratic have eventually reaped the benefits of their efforts.

History has repeatedly demonstrated that the main factor influencing the growth of an investment is not when you enter the market but rather how long you stay there. Even though some people may prefer the calmer waters of cash, volatility-induced stock falls (especially when they coincide with otherwise positive earnings reports) present a chance for long-term investors to use dollar-cost averaging to lower their average share price. When you consistently invest the same amount of money in a given investment over a set time, regardless of price, you use dollar-cost averaging. It implies that your same monthly investment can purchase more shares if the security price falls.

2. Don’t Put All Your Fruits in One Basket

To manage volatility, it’s important to have a diverse portfolio. Risk can be decreased by spreading your funds among numerous investment kinds.

Start by allocating your money across several types of assets, such as cash, bonds, and stocks. The distribution of your assets doesn’t have to adhere to any particular formula. Instead, it is specific to each investor. It considers important aspects of your financial situation, like the time you have to reach your goals (such as retirement) and your preferred level of risk tolerance.

From there, it’s important to diversify further within each asset class. For example, ensuring that your bond portfolio is not concentrated in one area if you invest in the bond market. It allows you to be better protected during volatile times, minimising risk if your holdings are not in a specific security.

3. Keep cash on hand and settle an interest-bearing debt

While you do not influence the markets, you have power over your preparedness for navigating choppy waters. Ensure you have enough money for emergencies at least six to twelve months. It could save you from selling investments at low prices to create necessary income and, as a result, provide you with the chance to take advantage of a downturn’s ensuing cheaper pricing.

Nevertheless, reduce as much of your higher-interest debt as you can (such as credit card and auto loans), not at the cost of spending money from your emergency fund. When markets become erratic, the objective is to protect yourself from further financial stressors as much as possible. Hence, you are less likely to act impulsively and make bad financial judgements.

4. Rebalance Thoughtfully

The superior performance of stocks compared to bonds over time may cause a portfolio that initially included 60% stocks and 40% bonds to gradually increase its equity allocation to 75% while reducing its bond holdings to 25% during prolonged market advances. According to your long-term goals, this can lead you to assume more risk than you had expected or needed.

That’s why it’s important to rebalance your portfolio periodically. Instead of regularly buying and selling stocks in a way that triggers capital gains, several rebalancing strategies can help to minimise any potential tax consequences, such as think minimums. Consider setting a minimum threshold for rebalancing. It may help your portfolio absorb short-term market volatility without activating huge transactions.

The Bottom Line: Staying  Focused on Your Financial Plan

Warren Buffet Once said, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”. 

Keep in mind that there will be times of volatility. But you can feel more assured in sticking to your long-term goals if armed with a carefully created, long-term portfolio rooted in a thorough financial strategy. And don’t be embarrassed to ask financial experts for advice. We’re always there for support, counsel, and direction as you pursue your objectives, especially in volatile times.