What is market volatility?
As described by Investopedia:
“Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured from either the standard deviation or variance between returns from that same security or market index.”
In simple words, volatility means how far away your assets' higher and lower prices can swing from the mean value.
There are many types of volatility; read about them here.
Factors affecting market volatility:
Several factors can sometimes affect the market; let's look at some.
1. Economic indicators
Several economic indicators can influence and represent market volatility—for example, GDP, inflation figures and employment reports. The performance of a company and its taxation companies can significantly impact a product's or company's stock price.
A state's total revenue at any given time may affect it. If political stability is jeopardized, it can also change and affect stock prices.
2. Corporate Turnover
If, for example, a company is in a recession and going through bad times, it can heavily affect the stock price of the shares. The company's stance in difficult situations will also determine the value of its shares. How they deal with the current problem will also affect the volatility.
How much a company earns in each fiscal quarter will also determine the price of its shares and the interest of its clients in purchasing them.
3. Global Events and Emergencies
Global events like natural disasters, political wars and geoeconomic events can have a long-lasting effect on stocks. Emergencies like natural disasters can shift the interests of investors in your company's shares. Example: the impact of COVID-19 on the real estate market, especially the commercial one. There are various ways to cope with it. Diversification of a company's motto and products can help you save the market value of your shares. Take your eggs to a different basket.
All these factors can affect market volatility and clients' emotions about their investments.
Understanding market volatility further:
Let's look at some more factors that affect market volatility.
1. Risks and Returns
A general rule of thumb is that if the volatility is high, the risk is high; this loosely translates to the buyers having to take a higher leap of faith while investing, leading to them putting a higher return value as compensation. Volatility is the most significant factor in the pricing options available.
2. Portfolio Diversification
Diversifying your portfolio is one of the most commonly understood ways to deal with volatility. You never know when the options for a particular product will shift, and having variety in your portfolio can help you cope better with the volatile market.
Most of the time, the market is less volatile than one might think. The prices are steady, but there is always risk. You can control investor behaviour by diversifying your portfolio fairly.
3. Trading Strategies
Some traders are rather cunning and are always looking to capitalize on the short-lived emotional lifespan of volatility. Various strategies for explaining trend following, momentum trading and options trading can help cope with market volatility in difficult times.
You can benefit from that.
4. Long-term investing
You may not have a product that can benefit from the diversification of momentum trading, and your interest might be appropriate only for long-term investing. Investing is almost always a long-term game. It takes work playing with stocks. Remember that the stock market may not be for you if you can't stomach volatility and risks.
Coping with market volatility:
It is just a continuation of the previous passage.
1. It is an opportunity
Volatility is an inherent feature of the stock market, so it should be part of your plan when you decide to pursue it. No matter which path you are on, there are some ways to boost your energy while you are at it.
It would help if you started looking at volatility as an opportunity. At this point, you can begin by purchasing stocks for yourself; this gives you ample time to take action and figure out your game plan for the next quarter.
You might have planned to invest somewhere, and this opportunity could not have come at a better time. You can now buy more stock at discounted prices within the same budget, which can act as your reserve fund for future emergencies.
But make sure you do your research before you invest. There is no wrong time for an opportunist.
2. Emergency fund
Investors must have appropriate funds available to sponsor the downtimes regarding living expenses for 3 to 6 months.
You are fine if you are not on the verge of having to sell your access to survive in this volatile time. Your savings will take a nasty hit. It would help if you had a safety net for times like this. Your clients will use it to gain confidence in you.
"It is all good as long as you don't have to take anything off your portfolio," says Benjamin Offit for Vogue.
Conclusion
Market volatility can have a long-lasting effect on your market strategy. It would help if you considered it when making all the critical decisions you will make this year regarding your investment goals.
We have gathered some critical, highly cited advice for you, and it is listed above. Please review it and ensure you are all set before it hits your assets.