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Market volatility can have a considerable impact on the value of an investment portfolio. As Kavan Choksi UAE mentions, the prices of one’s investments may experience rapid and unpredictable changes during periods of high volatility. This may lead to sharp decreases or increases in the value of the portfolio, making the situation a bit unsettling for several investors. Market volatility, however, can be managed effectively by following the right strategies.
Kavan Choksi UAE discusses tips for building a resilient portfolio for volatile markets
Market volatility implies to the unpredictable and frequent changes in the prices of assets like bonds, stocks and commodities. It measures how much the value of an investment fluctuates over time. Significant price swings may take place within short time frames during volatile periods. The instinct to sell investments when the market drops might look logical, but may also lead to missed long-term opportunities. Here are a few tips that can help build a resilient portfolio for volatile markets:
- Re-balance regularly: One must maintain their desired allocation. Over time, certain investments might grow faster than others, thereby causing the portfolio to deviate from its original allocation. Re-balancing involves selling off assets that have appreciated and investing in the ones that have under-performed, thereby restoring balance. Regular re-balancing would help prevent overexposure to any specific asset class, and hence promote a disciplined investment approach.
- Diversify across asset classes: It is prudent to diversify investments across asset classes, like real estate, commodities, bonds and stocks. Holding a mix of assets that react differently to market conditions helps in enhancing stability. For instance, in case the stock market declines, having investments in real estate or bonds may offset losses because such asset classes typically perform differently in varying economic conditions.
- Maintain an emergency fund: An emergency fund is meant to act as a financial safety net, and is likely to cover about three to six months’ worth of living expenses. This fund makes it easier for investors to handle unexpected expenses, without having to sell investments during market downturns. By having adequate financial stability during emergencies, one would not be forced to sell assets at a loss during volatile periods, and can preserve their long-term investment strategy.
- Employ rupee-cost averaging: It shall be a good idea to invest a fixed sum of money at regular intervals, no matter the market conditions. By spreading out investment purchases over time, rupee-cost averaging strategy helps lower the impact of volatility. When prices are high, one would purchase fewer share, and when prices are low, more shares can be bought, leading to more favourable average purchase prices.
- Stay informed and adapt: Investors need to monitor market developments, and try their best to stay updated on market news and economic indicators is crucial. Investors must regularly review their investments, and be prepared to adapt strategy as necessary.
As Kavan Choksi UAE highlights, one must make informed adjustments to their investment portfolio on the basis of market changes or personal financial situations. This shall make sure that the portfolio remains resilient.