Have you ever been around when the stock market is busy in the morning during most parts of the day and crashing down in the evening? Or how about someone who constantly sees how the prices of gold soar high during crisis moments? These make one wonder about that dreaded word "volatility" - a word that excites and scares any investor and they should Understand Volatility And How It Can Be Reduced.
How can investors put their best minds towards trading within it? Here, let's break this down and look into some ways to Understand Volatility And How It Can Be Reduced.
"Volatility" refers to price variations in financial markets over a specific period. In other words, it defines how an asset's price swings between up and down movements. A price fluctuating greatly above or below in-between so short a time marks a highly volatile market. If it remains more or less stable, the market is called low volatility.
One of the most widely-used volatility-measuring tools is the standard deviation of returns or through other indicators like India VIX (Volatility Index), which defines the market sentiment and expected future volatility.
Several factors can trigger volatility in the financial markets:
> Economic Data and Policies: Inflation rates, GDP growth, RBI interest rate decisions, and fiscal policies all have a significant impact on investor mood.
> Global Events: Political upheaval, wars, agreements about trade, and even global pandemics (such as COVID-19) have the potential to bring down the markets.
> Specific Company Factors: Earnings reports, management changes, or product launches impact the stock price of certain companies causing the overall movement of the market.
> Liquidity and Market Speculation: Such conditions where there are no buyers or sellers or extreme speculation impact prices quickly.
> Investor Sentiment and Psychology: Fear and Greed. If investors panic and start selling stocks, the market can plummet. On the other hand, over-enthusiasm can push prices too high, leading to bubbles.
Comprehending the market volatility will help you to make better investment decisions for further. Here’s why:
> For Short-Term Traders: Volatility creates opportunities to earn quick profits, but it also increases risk.
> For Long-Term Investors: It affects portfolio value, but knowing how to manage it can help in wealth creation.
Volatile markets bring investment and borrowing decisions into corporate environments, as well as into the fold of possible expansion plans. The smart investor perceives market volatility not as a cause for concern, but as an opportunity to take risk management measures and capitalize on market movements. Let us now explore how this can be implemented!
1. Investment Diversification
Investment Diversification is indeed the golden rule of investing. Diversifying investments across different asset classes such as equities, bonds, gold, real estate, and even international markets insulates against the volatility from any single sector.
For example, there would be a shine of hope if the stock market were to fall since gold prices usually rise, thus changing the balance equilibrium of your asset portfolio.
2. Put Your Money Into Blue-Chip Stocks
Companies with such a great market standing as TCS, Infosys, HDFC Bank, and Reliance find it easier to stabilize themselves during volatile times. Their fearless fundamentals give them this edge against market swings.
3. Invest Systematically Through SIPs
Investments in SIPs have some fixed amount being poured regularly on a mutual fund. This method ameliorates the risk of putting in a lump sum amount at the wrong time. This forms a rail for rupee cost averaging, that is, when prices are low, you buy more units, and when prices are high, you buy fewer units, thereby lowering your overall investment cost.
4. An Emergency Fund Is A Must
Volatility can hit personal finances too! An emergency fund of at least six to twelve months of expenses maintained in a liquid savings account or fixed deposit goes a long way in preventing panic selling during a dreaded market downturn.
5. Don't Time The Market: Stay Invested
Market timing is a dangerous game. History proves that in the long run, markets recover from every crash, and the investors who stay invested become the biggest beneficiaries due to the power of compounding.
For example, the Nifty 50 has delivered consistent growth over decades despite short-term crashes.
6. Look For Defensive Stocks
Pharmaceuticals, FMCG, and utility businesses perform well even in uncertain times because consumers continue to buy medicines, groceries, and power.
7. Strategies For Hedging
Options, futures, and derivatives are used to hedge against losses by sophisticated investors. For instance, purchasing a put option can protect a portfolio against losses during a severe market downturn.
8. Control Your Euphoria
Many investors unfortunately get caught up in the panic of the market and jump into investments when prices are high. Patience and discipline are the greatest virtues for surviving in such volatile markets.
Volatility is indeed a natural aspect of financial markets. However, the intimidation it causes may diminish with the right strategies. Instead of complaining about erratic market movements, you can learn the entire concept of Understand Volatility And How It Can Be Reduced and use them to acquire cheaper prices on good assets and wait for them to increase in value over time.
THE MESSAGE IS THIS: INVEST WISELY, KEEP PATIENCE AND LET THE MONEY GROW OVER TIME.
> Here’s the link to the YouTube Channel below created by Ruchir Gupta, India’s Leading Stock Market Mentor and currently the Most Trending Role Model in the Stock Market Industry where he illustrates every topic related to The Stock Market deeply by stating different relatable causes and effects and also coming up with appropriate solutions to the Problems!
Go and watch to avoid problems and learn about the stock market with exact logic and strategies!
Don’t forget to Subscribe to RUCHIR GUPTA & RUCHIR GUPTA PODCAST on YOUTUBE!
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