Understanding market volatility

A volatile market is a highly unpredictable one and the usual advice would be to steer clear of highly volatile markets. However, amidst recent events of the pandemic that has made it necessary to cast a wide investment net, it is almost inevitable that you will find a high level of volatility in markets around the world. Investment boils down to achieving and maintaining financial security and playing dice with your funds is not a sure way to achieve that.

Covid-19 has revolutionized life and it has had serious implications for corporations and for whole nations as many struggles under the weight of close borders and increased restriction. After the easing of restrictions, economies are yet to recover from the initial shock. Some are recovering but in a way that was not predicted by many financial analysts, says Todd Knoop, an economist at Cornell College in the United States. Thomas Shohfi, an assistant professor at the Rensselaer Polytechnic Institute agrees with this.

These events are not exactly new but they present a learning opportunity especially for long-term investors, whose portfolios might even see more of these events.

Retirement portfolios like Roth IRAs and 401ks are yielding less than 80% of what they used to pay, which means the rewards are lower now. For those that are tied to the S&P 500, they are likely to also drop a bit more since the main index has witnessed significant volatility during the pandemic. However, as with most long-term investments, it is significant to note that the market would address some of these problems. The best strategy, therefore, seems to be to do nothing and to stay level-headed.

For those investing in non-retirement portfolios, it is good to try not to succumb to market pressures and make rash decisions. In the long run, staying consistent in investment beats trying to outsmart the market or making a quick profit. It might be a better idea to buy stocks whose values have taken a dip and play the long game. Another strategy would be to invest a certain amount consistently regardless of the stock price. That may help disengage the tendency to time the market and hence, a bad move. Consistency ultimately wins.

At this stage, a lot of events have occurred in markets over decades. Stock prices have risen, the nature of markets has changed significantly and the market caps of otherwise small-cap companies have risen astronomically. There is not a better time to take a seat and take some notes. Do not let the volatility influence your emotional state, as that would lead to poor market decisions.

Invest wisely by carefully prioritizing your wants and needs, and understanding the context in which the markets are operating. In addition, learn a lot.

Stocks and individual investment portfolios can be very volatile. Sometimes, whole markets can be volatile for a while. Other times, a huge event causes many if not all markets to become incredibly volatile. A good investor knows how to take advantage of all these events to make gains. Invest wisely.

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