While financial planning seeks to prepare you for financial setbacks, it does come with many…
Investing is a great way to create wealth, but no investment comes without risks. That is mainly due to the market volatility, which people have no control of. If you want to understand market volatility and how well you can handle it, this article will help you with the essential facts you need to know.
Understanding Market Volatility
Market volatility is the up and down movement of money and assets over a sustained period. It is the statistical measure 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.
How to Play Around It
While there is nothing you can do to control the market movement, there are some ways you can learn how to go with its flow.
Diversify Your Investments
You probably have heard the saying that 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.
That way, when one investment experiences a drop, you know that you have other assets that should not be affected by it. In fact, these other investments might even rise in value.
Look at the Situation From Another Perspective
The rise and fall of the market is inevitable, and it would be too difficult to try 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.
See the Opportunity in Every Problem
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. 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, younger people are more comfortable with taking risks and investing in growth assets as they have more time to make up losses; whereas those approaching retirement are more likely to invest in defensive aka lower risk investments to protect the nest egg they have worked so hard to accumulate.
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. Of course, working with investment advisers who are experienced in market volatility and structuring robust portfolios can keep your investments healthier than if you go it alone.
Should you need financial advice in Newcastle, do not hesitate to contact us at Newcastle Financial Planning Group. We are always ready to provide you with financial planning strategies to ensure you achieve your success and security. Book a complimentary meeting with us today.