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How to cope with stock market volatility

How to cope with stock market volatility

You can use different techniques to help reduce the impact of stock market volatility on your portfolio. See what might work for you and your investments.

If you are considering investing, or are already doing so, stock market volatility is something you should consider.

No matter how high you think your risk tolerance might be, no one wants the value of their investments to drop.

What is volatility?

Volatility referrers to the movement in price of an asset. A lower volatility means that the value of the asset may change steadily over time. A higher volatility means the value can change dramatically over a short period of time.

Here's some tips you might want to consider to help manage stock market volatility.

1. Don’t overextend

You can never be sure that an investment will increase in value. Past performance is no indication or guarantee of future performance.

You need to be comfortable with the possibility of losing the money you invest. If this is money you can’t afford to lose, you might want to consider other ways of investing, such as high-interest savings accounts or term deposits.                                

2. Diversify

Diversifying your investments can help minimise your risk and reduce the impact of any stock market volatility.

Heavy exposure to one particular asset or particular type of investment means that you’re more susceptible to any fluctuations that occur.

If your investments are spread across a range of sectors or investment types, when a company or a sector on the share market isn’t gaining in value, you’re less likely to see a drop in your overall portfolio balance. However, even if your investments are diversified, it doesn’t guarantee the value of your portfolio will not decrease.

3. Accept that changes are likely

Volatility is part of investing. Accepting that movements are likely is important to ensure that you have the patience to make informed financial decisions. Short-term fluctuations can detract from a long-term strategy if you’re vulnerable to the volatility.

4. Talk to an expert

Speaking to a financial planner can help guide your understanding about movements in the balance of your portfolio. 

Things to consider: Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not indicative of future performance.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Any securities or prices used in the examples given are for illustrative purposes only and should not be considered as a recommendation to buy, sell or hold. Past performance is not indicative of future performance.