2 Simple Strategies To Curb Negative Market Volatility

Since we’re all emotional beings, there is generally so much we can take if the volatility keeps moving unfavorably for a long period of time. The following are two simple strategies that will help you rise above volatility at least to a large extent.

Market volatility is expected – we all know that. However, no doubt that it can be very frustrating to see the value of your hard-earned money shift like a pendulum from one extreme to another.

Since we’re all emotional beings, there is generally so much we can take if the volatility keeps moving unfavorably for a long period of time. Since we have been considering the works of Benjamin Graham all week, we might as well refer to his strategies on how to curb the negative effect of market volatility in whatever way it comes.

The following are two simple strategies that will help you rise above volatility at least to a large extent.

Cost-Averaging

If you’re a passive investor, then this strategy is the best for you because you don’t have to worry about the changes in prices too much. Particularly, you don’t have to strive for the best price to purchase your stock at.

Generally written in the currency the transaction is denominated in like “Dollar-cost averaging” or “Naira-cost averaging”, this simple strategy involves spreading your purchases over a period of time. The way you feel when the price of a security swings up and down depends on how much you purchased the security at.

As such, when you spread your purchase cost, you get to buy at different prices that could be high or low and eventually balance it out at an average. A simple example is that if you have N5000 to invest in one stock, instead of purchasing all the shares you can get at the prevailing price when you want to buy it, you can purchase N1000 of the stock 5 times at different prices.

Naira-cost averaging involves purchasing equal naira amounts of your investment or stock at regular intervals and it allows you to take advantage of the rise and fall in prices.

Spread Your Investments

This is one of the simplest methods to mitigate the negative blows of volatility and it is diversification. Spreading your investment portfolio between stocks and bonds allows you preserve your capital even in periods of market downturns.

Determine how much risk you are willing to take and spread your investments in both securities to reflect your risk threshold as well as the market conditions available. For example, if you are not willing to take so much risk, you might have 60% of your portfolio in bonds and the remaining 40% in stocks.

You can add a few short term safe investments like treasury bills for balance. This strategy will give you a little peace of mind and prevent you from panicking and making irrational decisions as a result of market volatility.

Written by Lawretta Egba.