Most investors get spooked during turbulent periods, and start challenging their investing plans in volatile markets. That is especially true for new buyers, who are frequently tempted to take themselves out of the market entirely and sit on the sidelines until it feels safe to plunge back in.
The thing to know is inevitability of market fluctuations. Over the short term it is the nature of markets to move up and down. It’s incredibly difficult to try and plan out the business. Sometimes, it involves risks including. One solution is to maintain a long-term outlook and ignore the volatility in the short term.
This is a solid strategy for many investors. But, even long-term investors, they should be aware of volatile markets and market conditions. In addition, the steps that can help them weather this volatility.
The Definition of Volatility
Volatility is a statistical measure of a market or security ‘s tendency to rise or fall sharply in a short span of time. The measurement uses the standard deviation of an investment’s return.
Standard deviation is a statistical concept that denotes the expected amount of variation or deviation.
Wide price fluctuations and heavy trading are typically characteristic of volatile markets. They also result from a one-way trade unbalance. For example, all buy and no sell).
Investing in a Volatile Market
One way is to avoid volatility altogether and avoid the higher risks. It means that remaining committed and not paying attention to volatility in the short term. Even that can be tougher than it sounds; it can be more than anyone can take to watch your investments suffer a 50 percent drop in a bear market.
One widespread misunderstanding regarding a buy-and – hold strategy is that maintaining a 20-year portfolio is what makes money for you. Long-term investment also needs research, as the business fundamentals drive markets. Like Warren Buffett said, “Opportunities for deep value on high quality businesses only come every once in a while. Buffett says: Go all in.”
If you consider a business with a solid balance sheet and stable profits the short-term volatility do not impact the company’s long-term worth. In fact, volatility periods could be a great time to buy if you think a company will be good for the long term in volatile times.
