Investing in a Volatile Environment

The volatility we have experienced in the market recently is very worrying for some investors. Unfortunately, these investors who have hit and sold the panic button are acknowledging huge losses in their portfolios to turn to investments that are perceived as a safer place to invest.

The fact is that we are investing our money to earn long-term profit rates that will exceed the rate of inflation and help us maintain our purchasing power. Historically, money has been the worst place to invest in the long run.

Loss of investment capital in a volatile market
According to Fidelity Investments, during the fall of October 2017 and March 2018, the market sold its 401 shares, which were then abandoned by investors whose account values ​​increased by about 2%, including contributions, until June. 2019. The balance of the accounts compares with those of about 50%. In times of extreme volatility, wealth managers will often tell customers to keep investing, instead of selling in the scales market and making big losses.

Building trust in your strategy is a way to avoid buying high and selling low. Having the mental conviction to tell yourself that you have a carefully planned portfolio of high quality investments can go a long way in overcoming the toughest days of market volatility. If you are unsure of how to select a high-quality investment, consult with a financial manager or a registered investment advisor.

The question is; how do you get to that state of mind? It’s not easy if you’re the type of person who tends to have knots in their stomach when the market goes down. Here are some steps you can take to increase your confidence.

Conquering the fear of volatility
One step you need to take to better manage your volatility is to make sure you have the right financial resources for a financial emergency. That way, you won’t be dependent on your wallet for unexpected expenses and your anxiety level will be lower, knowing that you won’t have to sell your investments when they fall in value.

Make sure you have a mix of investments that match your risk tolerance and time frame. This can be achieved by considering how you felt when past market declines occurred. Your wealth management the counselor should be able to give you a questionnaire that will give you a score when completed. The score on the quiz will be the corresponding asset allocation, which you can use to determine your division between shares, bonds and cash.

Once your assignment is determined, hold. It is a good practice to relocate your assets regularly to keep your risk level the same. This means that a portion of these better-performing investments will be sold (buy up) to buy shares of the underperforming (buy low).

Other ways to cover volatility may be to use options. Both strategies are easy to apply. One is the sale of call options against underlying stocks or ETF positions. In this strategy (option sellers) you collect money from a speculator (option buyer) in exchange for an agreement to sell your shares if they reach a specific price (higher than where you are trading at the time of the sale). transaction). The option must reach the price target (strike price) within a predefined period (expiration date). Failure to do so will result in the expiration of the contract, the retention of the money paid, and the sale of more options against that stock position.

Another strategy is to simply buy a put option. This entitles you to sell your position in a stock or ETF that you own at a pre-determined price within a pre-determined period. For this privilege you will pay money (a premium) to the potential buyer of your shares (put option seller). This strategy should be implemented in periods of low volatility, as the cost of the transaction will increase as the markets begin to decline.

Buy with Conviction
Suppose you have owned a stock that has gone well over time. The stock has a history of rising revenue, earnings and dividends. It seems that stocks are usually on the rise when the market is up, only now has there been a big sale in the market, and shares have fallen dramatically as a result of market conditions. It may be that the time is right for the company to do its homework and ensure that the overall downturn is bad. If this is the case then maybe this is the time to buy more stock. Large companies are often sold out in market declines, which can lead to a huge rise when the market ends.

Talk to your estate management team
You should also consult with yours financial manager when markets are volatile. Investment professionals are working to understand what causes market volatility and can often provide some information. Often your investment professional can help alleviate your anxiety and remind you of your commitment to your assignment and financial goals.