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How to invest in a turbulent market


Mar 30, 2022


A volatile stock market can be enough to spook even the most seasoned investors. So how do you play it in these crazy times?

The pandemic and more recently, the conflict in Ukraine has made for a particularly bumpy ride for Wall Street, the ASX as well as markets right around the world.

But there is no need to panic.

There are some tried and true principles to fall back on in uncertain times.

Here are some golden rules to follow to negotiate choppy waters and ensure your investment is still afloat when the storm has passed.

Volatility doesn’t last

If history tells us one thing, it’s that there are brighter days on the horizon and the highly volatile markets we are seeing won’t last forever.

The past has been littered with periods of uncertainty and decline.

But those who sell when the going gets tough tend to crystalize their losses and miss out on the opportunity of a lifetime when the market recovers.

In addition, bear markets tend to be of much less impact and shorter duration than the bulls.

No-one can predict short-term market movements and plenty have gone broke trying.

That’s why it’s important to hold your nerve and play the long game.

Diversify your portfolio

Diversification is one of the staples of any solid portfolio and never more so than during times of volatility.

It is so important because no-one can predict which class of assets will rise or fall during any period.

By carefully spreading your investments over a range of assets, you really can help mitigate significant losses and cushion what might otherwise be a very bumpy ride.

There are a few extra layers to the strategy of diversification and they include:

Consider defensive assets: Moving a portion of your portfolio into defensive assets such as cash and cash equivalents, securities and bonds can help stabilise your position when the market is slipping.

Rebalance your portfolio: A portfolio that was once balanced can in time take on a very different feel, depending on the performance of individual stocks. Consider making adjustments where needed to steady the ship.

Index investing: Following an established index like the ASX200 or the NASDAQ is a great way of diversifying your portfolio. It exposes you to a range of stocks, cash, bonds and commodities without having to pick individual stocks.

Of course, it is crucial to work with an expert adviser as you work through your strategy.

Consider your risk capacity

It’s only natural to be anxious when the market is highly unpredictable. It will test your risk tolerance or emotional reaction in terms of whether or not you can hold your nerve.

Of even greater importance is your risk capacity. Can you afford to hold with the market falling?

If you are playing the long game, that’s fine. But if you need money in the short term or have borrowed heavily to invest, you have a decision to make and quickly.

You should never have money you’ll need soon or can’t afford to lose on the poker table or in the stock market.

It is far better investing in stable assets such as shares in blue chip companies and Australian property.

Conversely, the more time you have to invest, the greater level of risk you may be able to accept.

Get advice today

Whether you’re a seasoned investor or new to the game, everyone needs a professional strategy, expert advice and support to navigate these volatile markets.

If you’re looking for ways to not just safeguard but grow your wealth, it’s important to talk to an experienced financial adviser.

Contact us today to discuss all of your investment needs.

The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Nitschke Nancarrow specialises in accounting, tax and financial advice for superannuation.

Contact us now for a no obligations discussion about your needs.

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