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    5 ways to become worry free about market volatility

    Jan 24, 2022
    4 min
    4 Rating

    Stock markets have a tendency to continuously oscillate between price upswings and downswings– in fact the greater the upswing or downswing the more volatile the market is considered to be. Let’s look at the recent past of the headline index – the NIFTY 50. It breached its all-time high on 19th October 2021 when it crossed 18,6001; when in fact just a year and a half before it was at less than half this value having plunged to its lowest level since 2016 post breakout of the pandemic (76002).

    This trend is constant and even today we see the market up one day and down the other. Do these market oscillations give you sleepless nights? Causing you to worry about the safety and security of your investments?

    What if there is a way to manage this volatility so as to ease worries over your portfolio?

    Let’s look at 5 ways in which you can ease your worries about market volatility:

    1. Stay long

    Volatility typically has the largest impact in the short run. Over the longer term on the other hand, the effect of volatility tends to ease out and has potential to stabilize returns. One of the fundamental rules for equity investing is to stay invested over a long duration, at least 5 years or more.

    The investor that was patient and stuck to their investing plan through the initial negative impact of the pandemic, would have chance to gain substantially today with the market more than doubling since.

    So, if you decide to and stick to your long-term investment plans, the short-term market volatility should not bother you.

    2. Slow and steady wins the race - SIP investing

    Investing through Systematic Investment Plan (SIP) means investing smaller amounts periodically and consistently over a period of time. This means you invest into mutual funds of your choice systematically at different points of time. So, when markets are high you will buy fewer units and when markets fall you will be able to buy more units, eventually averaging out the cost of your investment. This core nature of SIP investing means you needn’t time the market to invest.

    Being disciplined and staying on track with your SIPs through market fluctuations can help you actually tide it seamlessly.

    3. Be balanced - your asset allocation strategy

    It’s a well-established fact that different asset classes respond differently to market changes. For example – equity and commodities such as gold/silver tend to perform inversely; when interest rates are on the rise debt may become the preferred investment mode, the converse being true when interest rates begin to fall making equity more attractive to investors.

    A truly diversified portfolio holding that is balanced across asset classes can be an effective tool to manage market volatility. Relying on expert financial advisors to achieve the asset allocation that suits you best, may be wise.

    4. Include the ‘the big’ and ‘the small’

    Just as different asset classes perform differently, even within the equity space different types of stocks exhibit a different response to market volatility. The large cap companies tend to show greater resilience in times of market downswings but may not be able to generate handsome enough returns as the mid and small caps during market upswings.

    Diversification of your equity fund allocation across market caps as well can help you balance your return and risk and see your portfolio through volatile times.

    5. Be mindful with your emergency funds

    Ensure you have a stable emergency fund in place – one that is not market linked such as investment in liquid funds or money market funds. This ensures that you have a fund to dip into; which is not severely impacted by market volatility to see you through any exigency that may arise.

    All in all, not hitting the panic button, and sticking to your financial plan is the key. Remember market falls may be temporary but the long-term growth opportunities can be permanent!

    Sources:
    1. https://www.india.com/business/share-market-today-stock-market-news-sensex-hits-all-time-high-nifty-50-crosses-18600-top-performing-shares-5059820/
    2. https://en.wikipedia.org/wiki/Stock_market_crashes_in_India#Crashes_of_2020

    Mutual Fund investments are subject to market risks, read all scheme related documents carefully.