With the Brexit now underway and uncertainty hovering in the air, it’s hard to predict what the next market action will be. Here are a few tips and tricks on how to thrive as an investor in today’s volatile environment.
Accelerate Loan Pay-off
Living in an ever-shifting economic environment, it’s a real challenge to go above savings level 0. However, in the felicitous case that you do happen to have some spare cash it would be a slick move to use some of it to accelerate loan payments (let’s face it, it’s kind of hard not to have a loan these days). If the interest rate on your loan is higher than what you could earn investing the money, then you can be sure you’re making smart use of your finance.
Walk in a CEO’s Shoes
Novel business strategies include development of a ‘pre-alarm system’ to help pinpoint crisis before it even started and safeguard the welfare of a business by sustaining areas that are likely to be more vulnerable to a potential downturn. Following this example, ordinary investors can do the same thing by keeping their eyes wide open on the market movements, currency appreciation or depreciation, any strengthening or resistance points, price hikes or drops, any decreases or increases in the unemployment rate, as well as any political measures that may trigger positive or negative market actions.
Cut Down Costs
In times of trouble numerous companies strive to reduce their break-even point by cutting costs in order to stay competitive. Similarly, humble investors can reduce their operating expenses by minimizing impulse purchases or refinancing their loans (if it really comes to grips).
Despite its negative aspects, a downturn can be the opportune moment for an investor to benefit. If you’re one of the lucky guys to have the resources, you can thrive in times of crisis! As fear makes most buyers ‘stay put’, prices go down in response. That could mean stocks, property, huge discounts on equipment for a small business, or education that will maximize your chances to achieve your financial goals. Find out more at the getabstract site.
Don’t Go on a Wild Goose Chase
Economic turbulence has historically left cyclical sectors or those areas of industry that are intrinsically linked to the business cycle and hence, more vulnerable to recession. Those business sectors include consumer discretionary, energy and materials.
Furthermore, economic volatility never leads to growth stocks. What numerous growth stocks have in common is the market expectancy that these companies post exponentially higher rates of profit and implicitly exponentially higher rates of revenue growth in the upcoming quarters. This ‘target’ becomes even harder to meet in a shifting economic environment. When the companies cannot keep up with Wall Street’s expectations, stocks quickly collapse.
Invest in Bonds
In a volatile environment, investors need to be more flexible than ever. Who says that bonds are only for older and more experienced investors? The advantage of investing in bonds is that you can (and should) expand your options beyond what your country’s Treasure or that of the US has to offer. If you’re looking to generate income in a volatile environment, you might as well consider municipal or high-grade corporate bonds and emerging markets sovereigns. With regard to the emerging market sovereign debt, the rule of thumb to prosper in a turbulent economic climate is to keep a weather eye on and gear investment toward highly-rated issues.
Focus on Low Beta
As a measure of ‘hedging’ your investment in a rapidly changing environment, you should favor low beta opportunities, experts suggest. Beta measures the risk of a security or a portfolio. Trading experts and market analysts advise investors to refrain from staking their funds on high beta stocks and sectors like energy and consumer discretionary during volatile periods. Even investors who like more adrenaline should keep in mind that low volatility value stocks often tend to outperform their more volatile growth counterparts, in time. Favoring lower volatility sectors, investors can profit from the dividends that these stocks yield. This category includes healthcare and utility sectors.
Diversity Is the Name of the Game
Another way to thrive in a volatile economic environment, experts say is diversity. The more diverse your stock portfolio is, the greater your profits will be. However, portfolio diversity is more than just owning a number of stocks from an equal number of operators in different sectors. It involves complementing stocks with bonds, real estate and cash investments, as well as hard assets. The more diversified your investment portfolio is, the less vulnerable it will be to the market whims.
Think Long Term in a Short-Term Volatility Environment
Are you a long-term or short-term investor? If you’re planning to diversify your portfolio and start investing in stocks, then you should keep in mind that the stock market is far from being a fast and easy money-making machine. Trading experts recommend investing long term in order to make profits in a short-term volatility environment and withstand any downturns, and…. have patience, it takes time. If you invest long term, you minimize the risk of holding a stock portfolio (which is not at all desirable in case of a reversal).
Another key element to success in today’s volatile environment is not letting your emotions take control. Constantly monitoring the markets will not do you any good, on the contrary, it will fuel your emotions, which will soon burge in causing you to make irrational decisions. Often guided by emotions, investors panic and sell at the very first downward market movement. This is far from being shrewd, as frequently a fall is followed by a positive, upward movement, which once you have taken the selling action, you can no longer profit from. This is most often reflected in buying high and selling low instead of vice-versa.
Focusing on short-term turns prevents you from seeing the bigger picture. Whereas, if you invest long term, you will minimize the risk of holding a stock portfolio, experts say.
Knowing all these tips and tricks, it’s all in your hands to profit from every opportunity in any volatile or non-volatile market conditions.