Even the most seasoned investors aren’t immune to market volatility which can strike any time. From policy uncertainty in the U.S. administration to geopolitical unrest, the triggers of dramatic market swings are endless – but that is an integral element of investing.

Short-term movements in the market can easily throw long-term investors into self-doubt. Many start to question their investment strategy and some even withdraw their funds from the market out of fear of a downturn. But bailing out on the slightest sign of shakiness can turn into a big mistake in the long run when the market turns around and starts growing once again.

So instead of worrying, make sure that you take necessary precaution to prepare for the volatility when it strikes. Here are a few ideas to protect you long-term investment from sudden market movements.

To minimize the risk of making losses, diversify your portfolio so that you have your money spread over various investment types

Diversify

It’s almost impossible to outperform the market with a single type of investment, and even the most seasoned investors don’t know with certainty if a stock will continue to grow in the future. To minimize the risk of making losses, diversify your portfolio so that you have your money spread over various investment types.

Have a good asset mix by investing in large firms, promising startups as well as international companies. You can also apply more than one investment strategy to your portfolio. A commonly used strategy is investing in fast-growing funds but some smart investors even a take a risk by betting their money on undervalued companies that show signs of rebound.

There is no guarantee that diversifying your portfolio will prevent losses but this strategy can definitely mitigate the effect of market volatility and protect investors from the fear of a downturn.

Take Risks According to Your Time Frame

If you’re young and have plenty of years until retirement, it makes sense to take riskier investment decisions because even if there is market downturn in the short term, you portfolio still has plenty of years to recover and get back on the growth track.

If you’re closer to the retirement age, it doesn’t make sense to invest in high-risk funds in hopes of bigger returns. Experts advise betting more money in risky assets when you’re young and slowly moving towards cash and bond funds, which offer smaller returns but are less risky.

Readjust your Portfolio

As discussed in the last point, it makes sense to invest in riskier assets if you have a higher tolerance to risk and still have plenty of time before retirement, but making regular adjustments to your portfolio to minimize any imbalances is also crucial for long-term growth. If one investment type starts performing better than the rest, it can throw off the balance on your portfolio. The best strategy in this case is to sell off a portion of the best performing assets and reinvest the money in the underperforming stocks.

Experts suggests reviewing and readjusting your portfolio no more than once a year to make sure that the investment strategy is in line with your long-term goals. If you’re adding monthly contributions to your retirement fund as with the 401(k) plan or IRA, monitor the performance of the stocks on your portfolio and invest more in the underperforming asset classes.

Dollar-Cost Average

You don’t need to adjust the amount of money you invest in your fund on a regular basis in hopes of timing the market during volatility. Making a fixed contribution every month means that you’ll be buying fewer shares when prices go up and more when they are high.

Making regular adjustments to your portfolio to minimize any imbalances is also crucial for long-term growth

Shifting Strategy as You Get Older

Once you start getting closer to the retirement age, you should start shifting towards a more conservative approach and invest in funds that are more immune to market volatility.

Most investors who’re approaching the age of money withdrawal invest up to four years of expenses in money-market funds or other assets that relatively remain stable in value. Since you’ll need the investment fund to last at least 30 years after retirement, you should have a certain portion of it invested in aggressive stocks for long-term growth.

Before you start investing in the stock market, remember that market volatility is inevitable and you need to learn to make decisions that aren’t influenced by emotions.

What is the best strategy for protecting your investment against short-term market volatility?

8 Comments

  1. I tend to invest more in mutual funds and money market bonds since I’m now older and I need to secure a money to fund my children’s education. No time for stock market anymore.

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