Do You Really Do Nothing During Market Volatility?

When the market is volatile, do nothing but keep your age and your financial position in mind.

In the investment business, there is probably nothing as assured as risk. And a lingo that we throw around in the finance word to put this to perspective is “Market Volatility.”

A market is said to be volatile not just because there is a level of risk to it, but as a result of the degree of dispersion it possesses.

When a market is heavily volatile, it means that it can rise and fall abruptly or haphazardly typically over a short period of time. The point is that there are wide price fluctuations and the higher the volatility, the riskier the asset or the portfolio.

The usual rule is to wait. Let it ride. But is that really all there is in absolute terms? Not quite. Simply put, it depends.

It Depends On Your Age

Doug Bellfy, a certified planner at Synergy put it this way to CNBC, “If you have 40 years left to invest, a bear market right now is just noise and should be ignored; in fact, often celebrated. On the other hand, a stock market crash that starts the day after you retire can cause a permanent lifestyle impact if all your money is invested there.”

In other words, when the market gets volatile, you wait – but you also need to consider your age. No matter how fit or how agile you are right now, the truth is that it is only a matter of time before life gets ahead of you.

So, just as you plan towards cashing out on your huge growth stock in the future, you really have to consider whether that future would exist anyway.

In your 20’s and 30’s, go all out! Asides the fact that you have a lot of room to take in the volatility so much so that you still gain from it, time value of money (vis-à-vis inflation) would show you that everything is cheaper in the short term.

The shares you buy for N20 today could be N100 in a few fast years down the line and you would have everything to gain from it.

As you get older, retirement should be at the forefront of your mind. In your 40’s, you are much more interested in saving for retirement as opposed to hitting a lottery. Well, I would think so.

However, this doesn’t mean you should make a run for it whenever the market seems to be a slow bear. There is, all things being equal, still a lot of time to stay. This, however, doesn’t mean you should time the market or give it a number of years before you take what’s left and go.

But it is important to ensure that you do have good enough cash to stay comfortable.

When the clock starts slowing down and you’re in your 60’s through 80’s, slowing things down in your investment as well is a good idea.

If for anything, reduce your risk appetite because unless you are trying to save for your kids and grandkids, you need funds to live comfortably. Do not avoid investing completely because cash can only go so far. At this point, Treasury Bills and other secure assets are great.

It Depends On Your Financial Position

This is probably the most important part of your decision of whether to sit put or race to the exit. We cannot stress this enough – invest money you don’t need.

It doesn’t matter if the analysts say there would be a major market boom next year; if you need the money now, chances are that you wouldn’t wait even if it is a bull market. A great way to do this is to ‘forget’ the money.

Push it to sunk costs in the recess of your mind. If for some reason you cannot do that to a certain degree at least, then that money shouldn’t be in the market in the first place because you would lose it to the panic of volatility anyway.

In summary, when the market is volatile, do nothing but keep your age and your financial position in mind.

Written by Lawretta Egba.