Six Strategies for Volatile Financial Markets

With the recent issues circulating in China due to the devaluation of its currency, combine that with the decline in oil prices and the possibility that the U.S. Federal Reserve will eventually move to increase interest rates, the market has suddenly become volatile again. Due to these factors, it has been prompted by fear that global growth is slowing down. In a situation of this magnitude it would be human nature to sell or get rid of any exposure that investors may have to stocks, but as history has shown, usually when it seems as though it’s a bad time to get into the markets, can possibly be one of the best times to invest. Over the years, there has been 4 severe recessions/down turns in the market and each time the markets showed great recoveries and returns during the 5 year period after those down times. The bottom line is that just because the market shows a volatile atmosphere, does not mean that it’s time to jump ship and sell off your investments. What is necessary in a volatile market however, is to have a plan and to stick to that plan. Here are some strategies to help you manage your investments in volatile markets.

1. Have a strategy

First off, you have to determine what kind of investor you are; this can be discovered by analyzing a few areas. The first area you want to look at is your time horizon, this is roughly the amount of time you wish to have your money invested. Then, you want to assess your risk tolerance; this should take into account your financial situation as a whole such as your income, debt and any other significant expenses. Doing this can help you devise a strategy that best suits your needs and lifestyle.

2. Be comfortable with your investments

It is crucial that you are comfortable and most of all believe in your investments. You have to be prepared for short-term fluctuations in your account balances; if you can’t handle those changes, you might need to re-evaluate your portfolio and find something that is more suitable to you. Be careful with being too conservative, as it might not provide you with enough potential growth in order for you to meet your financial goals. Ideally, the goal is to believe in and stick to your initial investment plan through thick and thin.

3. Diversify

Probably one of the most important rules of investing is to diversify your holdings. While diversification may not guarantee that you won’t incur losses, it may help limit those losses in a slowing market. For example, if your portfolio is only holding stocks, you may see a significant loss when the market starts to head downwards. Now on the flipside, an all-stock portfolio may show greater returns when the market starts to increase compared to a highly diversified portfolio. If you’re someone who wants to limit their risk and still see good returns, you may want to consider holding a mixture of stocks, bonds and short-term investments; as this range of holdings has shown to limit losses in down markets, but still present profitable returns in upward trending markets.

4. Do not try to time the market

Trying to move in and out of the markets can prove to be costly and thus, trying to “time” the market will present itself as being a difficult task. This can cause problems for investors because a significant portion of gains usually comes within a concentrated period and if missed, can decrease your growth potential. Data from Fidelity shows that investors tend to increase their stock allocation prior to downturns and then decrease their exposure just before market rallies.

5. Invest regularly despite volatility

Instead of investing all of your money at once, you may wish to use a time-proven investment technique called dollar cost averaging. This is when you periodically invest a sum of money whether it be weekly, monthly or quarterly, regardless of how the market is behaving. The goal here is by spreading out your contributions, you aim to have a lower price per share on your investments. This might happen because you could buy a large amount of stocks when the prices are low and only a few when the prices are high. This kind of strategy does not guarantee a profit or protect against any losses in a downward market.

6. Consider a hands-off approach

In order to ease the nervousness and stress of managing your money in a volatile market, you may wish to go for an all-in-one fund approach or a professionally managed fund for your longer-term goals. This may help put your mind at ease and let you focus on other aspects of your life. You can purchase funds that are highly diversified and managed by proven individuals and teams who understand the markets.

In conclusion, instead of getting caught up on short-term fluctuations, it is important to ensure that you have developed a sound and relative investment plan to enable you to feel comfortable during down times and truly benefit you in the future. The professional financial advisors and tax accountants at GTA Wealth Management Inc. can help ensure your financial security and maximize your wealth potential, now and into the future. We would welcome an opportunity to help you accomplish your financial goals.

Get the most out of your investments and help secure your financial future. Contact or call GTA Wealth Management toll free 1 855 GTA WLTH (855 482 9584) to maximize your wealth potential and accelerate your ride to financial independence. A professional wealth management financial advisor is ready to serve your wealth management, income tax and planning needs. GTA Wealth Management Inc. has three convenient locations in Mississauga, Toronto and Markham to serve you.
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