The stock market has been turbulent for many reasons. Be it the conflict in Ukraine, tensions between the US and China, and the coronavirus pandemic. In these uncharted waters, it can be hard for investors to keep their heads cool. In this article, we will look at investment strategies to stay the course. What is your objective? How can you be sure to attain that objective? Let’s dive in!
Understand the foundation of your portfolio
To understand the impact of these unpredictable times on your investment portfolio, you need to have a good understanding. This includes your holdings and your strategy. Holdings can be bought or sold, but a strategy should be a good mid-term to the long-term indicator of where your portfolio can go.
Diversification
What does your strategy tell you about your diversification level? Are you focusing on specific industries, or are you capturing a majority of industries? This is a relevant question, as some industries might be hit harder by changes than do others. A good example is the big tech crackdown in China, which is hurting these stocks (especially those listed in the US).
When you ensure you have more industries in your portfolio, you will likely spread the impact. This reduces your risk level and also ensures you stay the course. On the other hand, returns can be higher if you bet on the right industries. This can be a harder thing to do in the long term.
Continue to invest to lower your Dollar Cost Average (DCA)
When markets are turbulent, it helps to continue to invest. When there is fear, prices are often considerably lower and thus attractive. Stick to your investment schedule and continue to invest in the stocks and index funds you were planning to. Do be careful about timing the market. This is a hard thing to do and can lead to emotional purchases that prove counterproductive in the long term. By continuing to invest, you lower the average purchasing price of the stocks you own. This method is referred to as Dollar Cost Averaging (DCA).
Take a step back and breath
Looking at your portfolio daily can be frustrating. With high volatility comes high emotions, leading to behavior that should be avoided. Therefore, it is recommended to limit the use of your stocks tracker. Consider looking at it weekly or monthly instead of daily.
Another option is the use of a portfolio tracker app, which helps you to set notifications that are relevant to you. Hereby you do not need to check a tracker, but you will be informed when major fluctuations or world news takes place. Still, when receiving this news, be careful in conducting an emotional trade. Data shows that, when having a long investment horizon, it is always better to sit back and enjoy the ride. It might seem counterproductive, but within a few years, this could easily be a small dip followed by a spike. The only difficulty is that nobody can predict what is going to happen. Time will tell, and until that time, you should continue to grow your wealth instead of day-trading it.
