Every investor has a different level of risk they are willing to take with their portfolio. Despite the differences in risk tolerance among investors, one thing they will all have to deal with at some point is market volatility. Whether you manage your own investments or work with a financial professional, planning for market volatility is one of the biggest challenges. You can look at historical data extensively, but sometimes it’s impossible to predict an event like the COVID-19 pandemic we are living through now. Still, volatility can be historically planned for and we’ve taken a look at how it impacts investment strategies and risks.
Volatility Can Be Planned For
Whether you’re a financial advisor or a brand new investor, understanding market volatility is present can help you plan for the future. It’s impossible to predict the amount of market volatility or the level in which it will impact your investments. However, looking at historical data can give you a good indication of what risks you’ll be taking with a particular investment. Market volatility has a general perception of being feared or concerned about. But the truth is volatility can be positive when your investment strategies include buying assets that are undervalued and selling assets that are overvalued at any given time.
Measuring Investment Risks In A Portfolio
Volatility is typically measured with a long-term view, but you can look at the short-term risk as well. Looking at returns over 90 days or so is ideal to get a better handle on the extent of volatility. As we’ve seen recently with the oil and gas industry, the market plummeted to historic lows before rebounding quickly within about 45 days. Looking at markets daily can be beneficial, but if you want to truly measure the investment risks in your portfolio, it’s more accurate to view it on a long-term scale.
Diversification Can Mitigate Risks
Just like with anything, your risk tolerance can change over time. If you had a more aggressive portfolio at a younger age, you may want to scale back on the aggressiveness as you’ve gotten older. Mitigation of risk can happen in many different forms. One of the most common ways to mitigate risk is with the diversification of your investment portfolio. With a well-diversified portfolio, you’ll provide better protection of your assets in the event of a market crash since you don’t have all of your assets in one place. Intense market volatility can strike at any time, so consider more diversification in your portfolio if your risk tolerance has changed over the years.
At Stock Investing Info, we understand every investor has a unique outlook on their future, goals and financial risk. We also know these factors can change with age or as life circumstances are altered. Market volatility is not something to be feared when it is planned for. In most cases, it’s best to stay the course and stick with your long-term goals, but it’s always worth looking closely at. Never hesitate to contact us if you have questions or concerns about current events as they relate to your personal investments.