Investing in a volatile market
During volatile times in stock markets investors are looking for answers about what they should do. The answers however, depend upon just who is asking the questions. If the questioner is a speculator who buys and sells stock with the focus on their momentary prices then it may be difficult to profer a solution as successful market timing is near impossible. If on the other hand, the question is coming from a long term investor, there are quite a number of ways to prepare for turbulent times.
It’s important not to let market uncertainties affect financial planning for the years ahead. Individuals who stop their investment planning, particularly during market downturns, can often miss out on opportunities to invest at lower prices. Nobody has all the answers to why the market takes a nosedive, but it’s often useful to take a look at the economic precursors that may play a role in market turbulence. Uncertainty is a constant, and downturns happen frequently. But market setbacks have typically been followed by recoveries. An investor should stay disciplined trying to time the market has proven challenging—and could be costly. An investing approach built with your goals and situation in mind may help you cope with short-term volatility. Instead of being worried by volatility, be prepared. A well-defined investing plan tailored to one’s goals and financial situation can help one be ready for the normal ups and downs of the market, and to take advantage of opportunities as they arise.
Attempting to move in and out of the market can be costly the decisions investors make about when to buy and sell funds cause those investors to perform worse than they would have had the investors simply bought and held the same investments.
If one invests regularly over months, years, and decades, short-term downturns will not have much of an impact on the ultimate performance. Instead of trying to judge when to buy and sell based on market conditions, if one takes a disciplined approach of making investments weekly, monthly, or quarterly, they can avoid the perils of market timing.
If you keep investing through downturns, it won’t guarantee gains or that you will never experience a loss, but when prices do fall you may actually benefit in the long run. When the market drops, the prices of investments fall and your regular contributions allow you to buy a larger number of shares.
There may be a few actions that you can take while the markets are down, to help put you in a better position for the long term. For instance, if you have investments you are looking to sell, a downturn may provide the opportunity for tax-loss harvesting—when you sell an investment and realize a loss. That could help your tax planning.
Finally, if the movement of the markets has changed your mix of large-cap, small-cap, foreign, and domestic stocks, or your mix of stocks, bonds, and cash, you may want to rebalance to get back to your target asset mix. That could provide a disciplined approach that helps you take advantage of lower prices.
These strategies are complex, and you may want to consult a professional before making any tax or investment decisions.
Rather than focusing on the turbulence, wondering whether you need to do something now or wondering what the market will do tomorrow, it makes more sense to focus on developing and maintaining a sound investing plan. A good plan can help you ride out the peaks and valleys of the market and may help you achieve your financial goals.
C-TRADE continues to make it a reality for investors across the geographical spread to participate on the stock markets in real-time through mobile phones and hand-held devices. The technology offers solutions that address the needs of modern investors who usually have busy schedules and would like to invest in a way that is fast, convenient and secure. C-TRADE comes in three variants. The USSD platform enables investors on non- smartphones to buy and sell shares by simply dialing the *727# short code across all mobile networks in Zimbabwe giving every Zimbabwean direct access to the capital market with enhanced efficiency and convenience. For those with internet access and Zimbabweans in the diaspora, C-TRADE online and the C-TRADE mobile app which can be downloaded from Google Playstore makes it possible to invest in shares anytime, anywhere.