One thing every investor has to deal with is market volatility. Some people choose to time their moves in the market in accordance with volatility, but there are plenty of challenges this presents and could result in lower returns. Since market volatility will happen periodically, it’s best to be prepared for it by having a long-term plan, spreading out across several asset classes and other diversification strategies. Offsetting your riskier investments can reduce volatility in your portfolio and here are some strategies to help you accomplish this.
Diversify Your Portfolio
The first strategy to consider with your portfolio is diversification. You can diversify within a specific asset class or across various asset classes. Investing in stocks from different sectors and industries can reduce overall volatility since they don’t correlate with one another. This way if the market crashes for a particular industry, you won’t lose everything like you might if you had concentrated your investments into a specific industry. Adding other assets to your investment portfolio can reduce volatility significantly as they have different factors that drive them.
Hedging can help investors offset market volatility as well. This can be done by using short positions, put options and more. The whole idea with hedging as an investment strategy is to offset losses, but this could also mean your maximum gains are limited at the same time. The benefit of downside protection can equate to lower investment performances, so this is a consideration you have to make as well. Hedging is a viable strategy for investors who need some peace of mind when market volatility peaks.
Invest In Alternative Assets
Another common investment strategy to reduce volatility in a portfolio is investing in alternative assets. These alternative assets could include private equity, real estate, venture capital, commodities, precious metals and more. Real estate or venture capital assets generally provide long-term returns and aren’t as volatile as other markets. However, these investments aren’t liquid, so this is a downside investors have to consider.
Investing in precious metals like silver and gold can protect against inflation. During times of uncertainty, having silver and gold can act as a hedge when other assets may be losing value. And sometimes precious metals actually increase in value when other assets are declining. It’s another sector of the market you’ll have to monitor to get the most return on your investment when you decide to sell or trade your precious metals.
Stock Investing Info works with investors who have various levels of risk tolerance. Market volatility will always be present. Some investors enjoy the thrill of riding it out, while others take a more cautious approach. Planning for the type of volatility markets experience at any time is difficult, but you can prepare for those times through diversification of your portfolio. If you are concerned about the lack of diversification in your investment portfolio or would like to discuss other strategies to reduce volatility, contact us and we would be happy to provide advice.