8 Key Strategies to Handle Market Volatility

When negative news surrounding the markets points to doom and gloom, adopt these strategies to avoid knee-jerk reactions during market volatility

Maria Collinge
March 15, 2024
The stock market is prone to volatility and can make you feel like you're riding a rollercoaster (Photo: Jacob Capener/Unsplash)
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Inflation is rising, interest rates are soaring and the markets are tumbling. And with recessions becoming a worldwide phenomenon, it can be tempting to sell off your assets when the markets are in constant flux. But perspective is important and coming out on top is the goal when it comes to investing. Here we’ll give you our best tips for handling market volatility.

Top tips for handling market volatility

1. Diversification is a must!

To handle market volatility, we urge that you don’t put all your money in one basket (we seriously can’t stress this enough!). Say hello to diversification: a fancy word, that basically means that you spread your risk across different companies, sectors, and countries. It’s the most common strategy employed by investors and is your best weapon against market volatility in the short-term. 

The strategy follows that by holding a diverse range of assets, such as stocks, bonds, and cash, investors can reduce the overall volatility of their portfolios. This is because different types of assets tend to perform differently under different market conditions, so holding a mix of assets can help to balance out the potential gains and losses from any one investment.

For example, let's say you have a portfolio that is made up of 50% stocks and 50% bonds. If the stock market experiences a downturn, the value of your stocks may decline, but the value of your bonds may remain stable or even increase. This means that the overall volatility of your portfolio will be lower than if you had invested solely in stocks. As a result, your portfolio will be less exposed to the risks associated with market volatility, and you may be less likely to experience significant losses.

2. Know your risk appetite

Risk appetite refers to the degree of uncertainty that an investor is comfortable with when it comes to the potential returns and losses from their investments. So perhaps this is a good occasion to ask yourself if your current level of risk is the right fit for you? Are you anxious and awake at night worrying about your stocks? If so, you may want to consider lowering your risk and slowly transitioning into more low-risk investments. 

3. Remind yourself of the stock market's historical performance

Take solace in history, and remind yourself of historical data to stay calm and avoid panic selling. Because the reality is, the economy has taken a beating throughout history – from world wars, to global recessions. When you zoom out over the long-term, you’ll find the economy has always bounced back. Even when the chips have gone down, the stock market has increased 7 to 10% every year. And this includes years with crisis such as the IT bubble and the housing crisis. By leaving your money invested in the stock market, you increase the chances of it growing and building a substantial pot for your future.

2. Don’t check your investments

When the markets are volatile, your emotions can get the better of you and lead you to make regrettable decisions, like selling your assets off at a loss. We didn’t enter the stock market to lose money! So if you want to protect your emotional and financial wellbeing, avoid checking in on your investments. Stay focussed on your long-term strategy and give the market the time it needs to bounce back. History has proven it always does!

3. Remember that investing beats cash

When the economy is riddled with inflation, stashing your money in a savings account will lose value as it struggles to outpace inflation. But by having your money invested, you can rest assured that your money will have the opportunity to flourish in the long-term.

Outpace inflation. Invest your money.

4. Dollar-cost averaging

Dollar cost averaging is a technique that can be used to manage the impact of market volatility on an investment portfolio. It involves investing a fixed amount of money at regular intervals, regardless of the current market price. This can help to smooth out the impact of market fluctuations on your investments, because you will be buying more units of the investment when the price is low and fewer units when the price is high. Over time, this can help to reduce the overall volatility of your portfolio, and may also help to maximize your potential returns. If your plan was to purchase $100 of stocks every month for a number of years, picking up stocks during a volatile market when prices are low can create lucrative buying opportunities.

5. Time in the market beats timing the market

Markets fluctuate over time, but we are here to tell you that one of the biggest mistakes investors make is trying to time the market. In other words, trying to guess the best time to buy and sell, to get the best possible return. Because the reality is that this is near impossible during volatile times. If you are investing, you most likely have long-term goals for your money – such as saving towards retirement or your children’s education. So try to remember that time in the market beats timing the market – in other words, if you invest consistently and start early, history suggests you will always get a better return. So don’t divert from the long-term goals!

There's no gain in incessantly checking the market movements. Time in the market beats timing it (Photo: Rendy Novantino/Unsplash)

6. Stick to the plan

Another mistake investors make is that, when markets are in a downturn, most investors want to do something – act! The explanation? Well, we’re humans. We are designed to act when faced with danger. Some freeze, some flee… and that’s why sticking to your strategy has always been the best decision if you want to reap the rewards of investing. 

Should I sell stocks when markets are volatile?

The simple answer is no. When markets are volatile, try to avoid selling your stocks, particularly if you’re a long-term investor. If, however, you are approaching your retirement and need to have your money withdrawn soon (for instance) then it’s worth considering shuffling your investments around into more conservative and less risk inducing assets. 

Final thoughts (on market volatility)

If you’re an investor, you will always be exposed to market volatility. The market behaves in unprecedented ways, which are near impossible to predict. But by having a well diversified portfolio and by sticking to your long-term strategy, a short stint of market volatility is a drop in the ocean. Remind yourself of historical performance and remember that the stock market has always bounced back. So don’t allow your emotions to get the best of you – keep calm and carry on!


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