Educating Investors

How to invest in Volatile Markets2 min read

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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 

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