Watch out! 5 things to avoid when investing in bearish volatile markets
Posted On March 18, 2022
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You might be watching market movements right now and suffering from whiplash as prices see-saw back and forth. When it comes to investing in stocks and shares, periods of volatility like this can just be part of the bargain you make when you become an investor.
However, during volatile moments, it’s important that you stay prepared and calm. To help you ride out the turbulence, I’m going to reveal some key things you should avoid doing. Keep reading to find out the proper way to conduct yourself when share prices are all over the shop!
5 things to avoid during market volatility
These five points don’t just apply to the current bearish market. It’s guidance you can carry with you into future periods of uncertain markets.
1. Don’t make any knee-jerk reactions
When you see the price of your investments take a massive dip, your immediate thought might be that you need to take immediate action.
However, this is usually the worst thing you can do. When the price of your investment falls, this is just on paper. It’s only when you make a sale for that lower price that you crystallise your losses.
You might also be tempted to switch to a different asset or investment. But, it’s important to remember that everyone around the world will think along similar lines. This could leave you overpaying, getting a bad deal when moving and re-investing your money.
2. Avoid panic selling if there’s no underlying change to the stock
If nothing has changed about the business you’re investing in other than the share price, take a moment to assess.
Sometimes it is the case that changes in the economy can hurt a stock. However, on many occasions, an investment may lose value through no real fault. It’s simply keeping in line with wider market movements.
Don’t ignore what’s going on, but if there’s been no fundamental change since you bought the shares, make sure you don’t panic sell.
3. Don’t buy shares just because the price has gone down
Although a volatile market can provide you with some great opportunities to buy shares, you still need to research and consider any moves carefully before investing.
If a stock’s value drops by 20% or 30%, don’t assume this means you can make an easy return. Sometimes stocks get hurt and it takes a long time to recover. Other times, they are permanently damaged, never getting back to previous highs.
Avoid trying to ‘buy the dip’ without doing your due diligence.
4. Resist selling out of the market completely
When the prices of equities are falling, plenty of people will crawl out of the woodwork screaming that you need to sell everything and move into cash.
Then, you wait until the market hits the bottom and buy back in. Timing the market like this sounds so simple, but in practise it’s near impossible.
Although holding onto some cash can work in your favour, making massive moves to sell in and out of the market completely is often not the best course of action. You’d also be forking out plenty of broker fees and potentially paying a lot of tax if you’re not using a stocks and shares ISA account.
5. Don’t expect everything to go perfectly
Sometimes, it’s unrealistic to think you can come out of wonky moments in the market completely unscathed.
It’s also important to understand that any lasting impact on individual stocks may not be known for years. Down the road, we can look back with 20/20 hindsight.
So, if you set your expectations and become comfortable with the fact that some of your individual investments might suffer, the rest of your portfolio can still survive and thrive – as long as you’re diversified and keep a long-term investing mindset!
If you’re looking to invest in shares, ETFs or funds, then opening a Stocks and Shares ISA could be a great choice. Shelter up to £20,000 this tax year from the Taxman, there’s no UK income tax or capital gains to pay any potential profits.
Our Motley Fool experts have reviewed and ranked some of the top Stocks and Shares ISAs available, to help you pick.
Investments involve various risks, and you may get back less than you put in. Tax benefits depend on individual circumstances and tax rules, which could change.
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