Investors are often influenced by their emotions during market volatility. Examples of these emotions include the Fear Of Missing Out (FOMO) which can lead to impulsive buying at bull markets, and panic selling at bear markets.
When operating in huge markets like the crypto world that currently has a market size valued at $2.17 trillion, it is easy to get overwhelmed. Hence, surviving market volatility requires a disciplined approach and a strong understanding of the market's long-term behavior with little to no emotions attached. This is because emotional decisions often lead to poor outcomes, as they are typically driven by short-term fluctuations.
So what should you do during market volatility?
What to do During Market Volatility
When markets get more volatile, the primary aim of every investor should be to first of all, protect their portfolio and secondly, maximize the volatility. Here are things to do during market volatility:
1. Diversify Your Portfolio
One of the keys to surviving market volatility is learning how to diversify. Diversification is the act of spreading your investments around to mitigate risks, across different asset classes, sectors, and geographical regions. By doing so, the impact of any single investment’s poor performance on the overall portfolio is reduced. For instance, combining stocks, bonds, real estate, and commodities can act as cushions against market swings.
2. Stay Informed and Updated
Keeping abreast of market news and trends, can also help make informed decisions. Understanding the factors driving market volatility, such as geopolitical events, economic data releases, or changes in monetary policy, allows investors to anticipate and plan for potential impacts on their investments.
3. Maintain a Long-Term Perspective
It’s important to remember that markets are cyclical. Short-term volatility is often a part of the journey towards long-term growth. By focusing on long-term investment goals and avoiding knee-jerk reactions to market fluctuations, investors can stay on course, survive the market volatility and potentially benefit from the market’s eventual recovery.
4. Rebalance Your Portfolio Regularly
Rebalancing your portfolio is an act that involves selling some assets and buying others to help maintain investment goals and keep investors within their risk tolerance. For example, if stocks are performing exceptionally well, you may reshape your portfolio by investing in more stocks so they might account for a large portion of your investment portfolio, reducing the overall risk.
5. Seek Professional Advice
If unsure about how to navigate market volatility, the safest bet is for the investor to consult a financial advisor who can provide valuable insights and strategies. A professional can help develop investment plans that align with the financial goals and risk tolerance of the investor.
Final Remarks
Remember, emotional decisions often lead to poor outcomes. Instead, focus on making rational, informed choices that align with your financial objectives. Also, market volatility is a natural part of investing, and by staying disciplined and proactive, surviving market volatility will not only be what's on your mind; you will identify opportunities for greater success.