Did you find 2013 to be volatile? What about this year? This time the market will be even more volatile than last year. The VIX index, a measure of the market volatility, increased for the month of February and reached the highest value recorded in the past 12 months. So how will you survive? Heed what the experts advise, and you will come out just fine when the year is over. Take time out and modify your investments, and it will be worth it.
As volatile as the market may be, the fact is that when you consider the longer term, your investments will still pay off, or so industry experts say. Actually we agree, but there is one problem. You cannot be so sure about volatile short term periods and that can cause problems. You need to cash in on a strategy that can that can help you survive these shorter periods. There are several tactics that the experts give to help you with this.
Dollar Cost Averaging
An industry professional told us to make use of the dollar cost averaging technique. In this technique, you invest the same amount every period without considering the market conditions. Should the value of the asset rise, you will have greater total value but you can buy reduced shares. If the asset goes down, your total value will decrease, but your contributions will allow you to purchase more shares. In the long term, all costs average out and you can enjoy an impressive return.
A balanced approach can also help you get through volatile periods. Invest in both stock and cash. As of now, bonds will not be able to provide you with great returns because of lower interest rates, but in volatile periods, they can protect your investment. How is this so? An industry professional told us that the value of short term bonds does not change very drastically. He added that bond and stock prices do not move in the same direction, and so bonds can act as a cushion. As such, your portfolio should consist of both bonds and stocks.
You can improve this strategy if they start taking note of your investments in bonds and stocks. If stocks are performing better, decease your bond investments and if it is otherwise, invest more in bonds.
Act on their suggestions, and you will get through the volatile market of this year.
Call us today for more information or contact us for a free business review.