Having Cash Could Help You Survive A Volatile Market

These investments will help you build your reservoir of cash so that you will be able to raise the required capital to purchase additional stock when market prices go down.

Market volatility is a norm in any stock market. The market moves as a result of the direct and indirect actions of members in the market, the environment at large, as well as the industry with which it operates.

There are, however, periods where high volatility exists and instability in the stock market and participants or investors will have to deal with dramatic price movements in various directions. During this period, it is normal to panic to sell.

But if there’s anything you probably already know from investing in stocks, it is that making decisions based on the influence of any emotion will lead to more harm than good.

In all honesty, you really cannot determine exactly what to expect with stocks. However, in situations of high uncertainty, a level of caution is the best bet and having cash is one of the best ways to do so.

Of course, the trade-off between risk and return exists. Cash and Cash equivalents like investments in the money market while great for safety, do very little in terms of yielding good returns.

Most times, they grow below the inflation rate and ultimately cause a general loss in the value of your funds. However, since market volatility is a short term phenomenon, having cash investments will serve as a buffer.

The first thing to do in periods of high volatility (fluctuations going both high and low) is to make investments into cash equivalents so as to shield yourself from potential declines in the stock market.

These investments will help you build your reservoir of cash so that you will be able to raise the required capital to purchase additional stock when market prices go down.

The advantage of this is that as long as you are a growth investor willing to stay for a long period of time in the market and you have faith in the stocks you’re investing in, you will have the opportunity to benefit from a market upturn but you will be able to do this only when you have enough cash to move forward.

It is as simple as saving to be able to leverage investment opportunities.

Another option that also involves opting for cash is to go after high dividend stocks. The dividends received will serve as a form of cushion to soften the impact of the highly volatile market.

Even when things get out of hand, you still have the income being received steadily to bank on. Where capital appreciation doesn’t seem like a great idea anymore, the reliability of dividend income will help reduce negative impacts. At the end of the day, the net earnings received will make up for possible losses incurred.

While there are other strategies involves, having cash will help make things easier in a highly volatile market until things get back to normal.

Written by Lawretta Egba.