A point for consideration is about the volatility in financial markets, which is an inevitable phenomenon in the world of investment that can cause some anxiety and turmoil for investors.
Maturity matters: whether you are a veteran in this field or a beginner, understanding the mechanisms of dealing with these fluctuations is of utmost importance to maintain the stability of your financial portfolio and control emotions.
To overcome such scenario, these are some practical tips recommended to follow during periods of high volatility:
1- Don’t rush to sell when prices fall:
- A decline in market indicators may prompt us to think about selling our investments hastily, but rushing to make investment decisions based on momentary market fluctuations can lead to huge financial losses.
- It is better to remain calm and stick to long-term investment plans. Remember that financial markets are volatile, but historically they tend to recover.
2- Maintain a long-term view:
- It is natural for markets to experience periodic fluctuations, both up and down. However, historical lessons suggest that periods of economic turmoil are usually short-lived compared to long periods of growth.
- Therefore investors should focus on their long-term investment goals, ignoring daily market fluctuations.
3- Assess your risk tolerance:
- Market fluctuations are a real test of your psychological and physical ability to face losses, so use these periods to assess your risk tolerance, i.e. your ability to calmly deal with severe price fluctuations.
- Ensure that you have sufficient liquidity to cover your daily expenses and emergencies and avoid risking money you need in the short term.
4- Diversification is the key to safety:
- Market fluctuations reveal the fundamental weaknesses of undiversified investment portfolios.
- If you have not reviewed and updated your investment portfolio recently, now is the best time to ensure that its assets are diversified in line with your long-term investment goals.
5- Invest in safe assets:
- If you are planning to spend money soon, it is wise to allocate part of it in safer investments such as government bonds or cash.
- These investments are less susceptible to sudden changes in value, which ensures that you maintain the value of your money and protect it from potential losses in the event of market fluctuations.
6- Balance your portfolio periodically:
- With market fluctuations, the asset allocation ratio in your portfolio may deviate from the original target.
- It is recommended to rebalance periodically by selling assets that have increased significantly in value, and buying those that have decreased to maintain a balanced distribution.
7- Trade cautiously during volatility:
- If you need to trade during periods of volatility, be careful when choosing times.
- Avoid trading during the first or last hours of the trading session, as markets are more volatile.
- In such a situation you can use order splitting strategies by executing buy and sell operations in multiple stages, instead of executing one large deal, which contributes to managing risks more effectively.
