Mitigation and Balance to do,when the market goes inbalance
This 2022 is reserving some movement in the markets for us, and if you have just entered the world of investing, you have a good chance of seeing the minus sign.
But despairing or panicked selling is usually not a winning strategy, especially since predicting how markets are going is impossible.
The best thing to do then could be (hear, hear!), To do nothing. Take a break from reading the news and try not to constantly check the value of your wallet, all topped off with a deep breath. If you have set your investments on solid strategies, it is often enough just to wait for the arrival of a rosier general situation. But we know that doing nothing can be frustrating, so here are some ideas to think about at a time when markets aren’t moving in the most favorable direction.
Re-evaluate the types of products
After a year of saying that skyrocketing inflation would only be transient, central banks are starting to raise interest rates to slow the soaring prices. In an environment of rising interest rates, some products perform better than others, and this may warrant an upgrade to your investment portfolio.
In this scenario, government bonds , for example, are underperforming, so you may want to reduce their presence in your portfolio or replace some with floating rate loans. Additionally, you may want to add some bank stocks to your investments – which often perform ‘better’ when rates rise as they can benefit from this increase when lending to their clients. It may also be worth introducing new products into the portfolio: real assets , such as commodities (gold and silver), natural resources, or real estate. In fact, real assets offer protection from inflation and a safer source of income as they are usually more resistant to rising interest rates.
Rebalancing the portfolio
Each portfolio is a combination of various asset classes (so-called ‘asset classes’). If you invest in different assets, one aspect to consider may be to do a portfolio rebalancing, or redistribute the available funds among the various investment products you own. This way, you tap into the profits on the assets that have performed well and invest that money in undervalued and cheaper assets.
Check the shares you own
If you have many different stocks in your portfolio, it may be worth reviewing your investment goal for each one. It doesn’t matter if the stock is down or up – the key question to ask is: if I didn’t already own this stock, would I buy it now?
If so, resist the urge to sell at a time when prices are soaring. You could also invest a little more if the price falls below a level that looks promising to you, especially if it is shares of profitable companies that have been ‘dumped’ by investors during the recent rush to sell shares in the market.
Instead, if the answer to this question is no, you can consider selling something – even if it means a loss. In the current environment of rising interest rates, the market is unforgiving of speculative and expensive growth stocks with profits far into the future. This is because these profits (if any) are worth much less when discounted to date at higher interest rates.
Apply the dollar-cost averaging
Long-term investors know that the market will eventually recover , so the important thing is to be in the right position for the rebound. So, if you still have some savings that you want to invest, you might consider a stock market crash as a buying opportunity. Obviously without buying blindly every time the market collapses, but finding a clever way to do it.
A strategy that can be adopted is, for example, that of ‘dollar cost averaging’: periodically buying a constant amount, regardless of the price, reducing the impact of market volatility on your portfolio. Let’s say you have € 1,000 to invest: in this case, it would simply mean investing € 200 each week for the next five weeks.
Try to learn from what is happening
The best investors try not to act impulsively and to learn from their mistakes to avoid repeating them and avoiding big losses in the future.
So, if your wallet has taken too hard a hit in the past few weeks, it’s very important to ask yourself why. Were you too focused on tech stocks and other assets that move in line with those stocks, like cryptocurrencies? Then the solution could be to better diversify the portfolio by investing in different sectors of the stock market and products that do not move in the same way.
The market, as we know, is not predictable at all and this nature is precisely the basis of the losses but also of the gains that can be drawn from it. A good dose of calm, together with a solid foundation of financial education, can be the key to dealing with market storms, especially when combined with a long-term look : in the long term, in fact, the market has for you (and for everyone). ), peaks to climb.