Investopedia defines market volatility as a statistical measure of the tendency of a market to rise or fall sharply within a short period time or in simple words we can say the ups and the downs of a stock market in a given period time.
Most of the Retail investors have burned their hands while investing in Covid-19 period, and this is especially true for a novice investor, who can be tempted to even pull out of the market altogether.
Market Volatility can be best described as a wide price fluctuation and heavy trading. There can be many factors that cause the market to fluctuate, these can be a good/bad news about a company or a sector, Heavy day trading or short selling, new policy, economic reforms, IPO, budgets, or some quarterly results of a company, these can also be due to foreign institutional investors (FII) or domestic institutional investors (DII) investments.
Let us look a the best strategies that can help you surf the volatile market:
- Create a well-diversified portfolio: Concentrated portfolio can be very risky at the time of volatility, avoid building a concentrated portfolio of just a few stocks rather try to have a well-diversified portfolio, try to have the right mix of stocks which can withstand the market fluctuations and help you mitigate the impact of volatile markets.
- Keep the long term approach: Investors should not react to short term market conditions and think of staying invested for a longer period, they should avoid emotional investing.
- Understanding Risk Appetite: Risk appetite can be defined as the willingness of investors to bear the financial risk with the expectation of generating a potential profit. Every investor should first understand their risk-taking capacity and then plan to invest in stock markets. Without proper analysis of his risk appetite, an investor can easily end up getting into huge losses.
- Investors who are approaching retirement: The investors who are about to retire or who have already retired should and are planning to withdraw your portfolio in 3-5 years should focus on investing in less volatile stocks. This can help them to easily withdraw their portfolio
In a nutshell, one can say that investing in a volatile market implies a great deal of risk. One must be fairly informed about their risk appetite before investing