Tips to invest in the volatile share market

Investing is a big commitment at the best of times. Now, with everything that’s going on in the world, we seem to be in the worst of times. Despite a potentially volatile share market, we wanted to let you know that it’s still safe to invest — if you’re wise, careful, and discerning.

This is a time for patience and discipline. It’s also a good opportunity to educate yourself on market ebbs and flows, and remember that short-term falls (albeit painful) are often a trade-off for long-term gains. To support you as you start, or continue, to invest in an unpredictable market, here are five tips to keep handy. 

1. Normalise volatility.

Yes, the market is volatile, but it’s not the first time this has happened. It certainly won’t be the last. Market unpredictability and volatility is always lurking, even in the most profitable market periods. Consider the oil embargos during the 1970s, the 1990s Gulf Wars, and of course, the Global Financial Crisis of 2008 — just to name a few. Each moment involved double-digit corrections and was followed by recoveries the following year.

During these periods, it’s important to limit risk-taking and “wait it out”. Volatility is usually short-term, so you won’t be waiting long.

2. Diversify your portfolio.

We’ve said it before, and we’ll keep saying it. Don’t put all your eggs in one basket — especially in the volatile market. A well-designed portfolio won’t be affected when one portion of it drops off because the others should be thriving — or at least breaking even. Given the current market conditions, you might like to reevaluate your portfolio and reorganise it to achieve a good balance. A lag in one area should be offset by the others. That’s the power of a diverse portfolio.

3. Don’t sell down.

We know it’s tempting, but selling down often isn’t the best choice. This generates a loss that otherwise only existed on paper. Once you’re out, you might not be able to generate any gains when the market bounces back. As people wait for the “right time” to buy back in, they usually only do once it’s booming again, resulting in a loss… Long story short, selling at the bottom and buying at the top isn’t a strategy for success. 

4. Invest regularly.

We know it’s tempting, but selling down often isn’t the best choice. This generates a loss that otherwise only existed on As the price of growth assets fall, there’s a unique opportunity to pick up quality assets at an affordable price. We already know that predicting the top and bottom of the market is basically impossible (we can give it a good estimate but never know for sure), so it’s wise to stick to a regular investment plan that buys quality assets on a regular basis. That way, you’re averaging your purchase price. During market corrections, your average purchase price will be lowered which helps maintain your financial plan through various market changes and behaviours. . Once you’re out, you might not be able to generate any gains when the market bounces back. As people wait for the “right time” to buy back in, they usually only do once it’s booming again, resulting in a loss… Long story short, selling at the bottom and buying at the top isn’t a strategy for success. 

5. Maintain a cash reserve.

If you rely on short-term cash requirements, make sure you keep an appropriate cash reserve. This is even more true if you draw an income from your portfolio. It’s tempting to be fully invested in favourable market conditions, but this might mean you need to sell down your capital at low points to fund essential short-term needs. Ideally, that’s a position you don’t want to be in. We suggest keeping at least one year’s income in cash to meet living expenses.

Avoid hype — seek advice

Just because a particular voice is the loudest, doesn’t mean it’s the right one. The media, in particular, love to hype up headlines about stock market pitfalls and corrections, but are usually one-sided. How often do you see headlines about bounce backs and gains? If you want quality, personalised advice that’s right for your circumstances, turn to a professional. If you need help preparing your portfolio for a volatile market, we’re ready to support you by providing appropriate tax advice and planning. We can also refer you to knowledgeable and trusted financial planners regarding your investment options.