How to cope with stock market volatility (2024)

FAQs

How to cope with stock market volatility? ›

Make sure your portfolio is properly diversified

A diversified portfolio that better weathers market volatility begins with owning an appropriate mix of investments aligned with your risk tolerance level. The mix of assets you hold should represent three broad investment categories: stocks, bonds and cash.

Make sure your portfolio is properly diversified

A diversified portfolio that better weathers market volatility begins with owning an appropriate mix of investments aligned with your risk tolerance level. The mix of assets you hold should represent three broad investment categories: stocks, bonds and cash.

Market volatility brings increased opportunity to profit in a shorter amount of time, but also carries increased risk. Risk control measures—such as stop losses—gain in importance when markets are more volatile.

Diversify: Spread investments across different asset classes and regions to reduce risk. A diversified portfolio can better withstand market volatility. Focus on the long term: Maintain a long-term perspective. Markets have always rebounded from past downturns to reach new highs, rewarding patient investors.

The strangle options strategy excels in high volatility. A long strangle involves buying both a call and a put option for the same underlying share but with different exercise prices, offering unlimited profit potential with low risk.

Options traders can make a profit trading volatility but this requires a strategic approach. Common strategies to trade volatility include going long puts, shorting calls, shorting straddles or strangles, ratio writing, and iron condors.

Commodities. Commodities are typically more volatile than currency and equity markets due to the lower levels of liquidity or trading volume than other asset classes, as well as the constant exposure to weather events and other production issues that might affect supply and demand.

Where to put money in a volatile market? ›

One way to help protect yourself from market downturns is to own various types of investments. First, consider spreading your investments across the three asset classes — stocks, bonds, and short-term investments. Then, to help offset risk even more, diversify the investments within each asset class.

Avoid panic selling.

Stay invested during market downturns and periods of volatility, with the knowledge that markets tend to trend upward over the long term.

Diversify

Diversifying your investments can help minimise your risk and reduce the impact of any stock market volatility. Heavy exposure to one particular asset or particular type of investment means that you're more susceptible to any fluctuations that occur.

There are different ways to measure stock market volatility. Three common approaches are beta, implied volatility, and the Cboe Volatility Index (VIX). Beta and VIX values can be found on most financial websites. To find implied volatility values, you may have to look specifically at options data.