How to invest in a volatile market: 5 tips to limit your risks
Volatile markets can destabilise some investors, sometimes leading to poor decisions. In this article, we give you 5 tips to limit risk and maintain more resilient investment positions, whatever the current market situation.
01. Stay informed and choose the right level of risk exposure
Before investing in the markets, it’s important to understand how they work. Learn about economic cycles, the ways various financial instruments function, and explore several potential investment strategies. That way, you'll know that volatility is inevitable and doesn't necessarily have to be a cause for concern. Feel free to discuss this with your financial adviser if you need to.
A good understanding of financial systems can help you make sense of the various market fluctuations, but it can also help you build a portfolio that reflects your own risk tolerance. You could choose a very conservative strategy, with lower returns but greater security, or you could choose to take more risk, with all the advantages and disadvantages that brings. There isn’t a single ideal strategy, but rather one that suits your profile.
02. Focus on a long-term vision
It's never pleasing when you see the value of your assets fall. However, taking a long-term view makes it easier to persevere and show resilience in a volatile market, especially when the stock markets are concerned. It's often about resisting the temptation to sell, particularly when prices are low. It's also important to remember that the market follows an upward trend in the long term.
It's also possible to see lows as a good buying opportunity. However, remember that not all losses are followed by an immediate rebound, and you need to analyse before making any rash decisions.
03. Focus on high-quality securities
In uncertain times, a sound investment strategy is to favour shares in companies that are well-established in the market. Equities defined as “blue-chip” correspond to companies which have stood the test of time and will probably be around for a long time. Examples include Apple, Microsoft, Nestlé, and Novartis.
These businesses are profitable and have strong market positions. They may not offer the same growth potential as riskier investments however they will be more resilient in turbulent market conditions.
04. Diversify your portfolio
Investing inevitably involves some risk. However, this can be minimised through diversification.
The idea behind a diversified portfolio is that if one asset falls, it will be offset by a rise in other assets in order to maintain the overall performance of the portfolio. This means investing in varied sectors of the economy, different countries, and multiple financial instruments.
Asset allocation can always be adjusted according to your reference market, currency, or investment objectives.
Practical guide: Portfolio diversification
05. Consult a professional
When markets become too uncertain, you don't have to navigate this journey alone. It's often interesting to seek the services of an expert who can advise and work with you to examine the most appropriate solutions that best suit your profile and needs.
The Piguet Galland team will be delighted to support and advise you with your investments, particularly during uncertain times. Contact us!
