When investing in a volatile market, like the one we have now, here are some useful tips that you can use.
Know Your Holdings
It’s important that you know what kind of investments you have. This is especially true when you’re the type who likes to manage some or all of your investments without professional help. Needless to say, you should remember this in times of extreme market volatility.
You have to check if your investments still align with your future income needs and investment objectives. If you think they don’t, you have to look at your statements and reevaluate your holdings or contact a qualified and professional financial advisor.
Corporate and High-Yield Bonds
You typically buy bonds to generate income and to grant stability to your portfolio. On the other hand, not all bonds are created equal. Corporate and high-yield bonds could be under significant investment declines if the volatility in the market goes up.
Applying that to the modern world, you can find that corporate bond issuance has reached a record high in recent years while interest rates were low. This recipe made debt unbelievably cheap like it’s a form of free debt for companies. In consequence, companies are now in highly leverage, meaning bonds could be at risk, especially if credit ratings continue to fall down.
The Tech Sector
Tech stocks and companies have catapulted to the forefront of the rally, driving the large part of the market run-up. On the other hand, they’ve also been some of the worst hit stocks during recent times of extreme volatility.
Technology is certainly for the future, on the flip side, and tech stocks valuation range from rich to off-the-charts for some companies.
If you’ve allowed tech stocks to surge in your portfolio, it is absolutely time to consider potential risks.
One of the most volatile investments is the emerging markets. These investments in developing countries are riskier as a result of political, financial currency, and other market variables. Emerging market performance tends to result in either feast or famine, as you can find in historical records.
If you have international investment exposure, you have to know how much exposure you hold in emerging markets. During the past years, the majority of investments in emerging markets was represented by loans by banks and governments.
At present, there is more private investments in emerging markets when compared to any point in history. You can lose this private money much more easily, potentially resulting in even greater volatility than in the past.
Regardless of the kind of investments you own, it’s always wise to avoid being too concentrated on any one kind of investment or sector. If your portfolio includes concentrated positions, consider cutting down your exposure through outright sales.
Improve Your Discipline
If you’re really a smart investor, you should be disciplined when it comes to your approach to the market. This includes having a long-term investment outlook, being diversified, and not timing the markets.
If you’ve usually sold when the market declines, a bout with volatility would be a time for you to contemplate and reevaluate your investments.