With all market news from CNBC to morning call and your Facebook investment groups, you already think volatility is a very devastating thing that all investors panic about and make changes to their portfolio very fast.
This is when the stock market is up one day and falls down the next week again to appear moving upwards again, only to drop down back, that’s what traders and investors call stock market volatility.
But is these movements are not all bad for an investor. We often discuss the terrible effects and scares of an uncertain market. Moreover, most of the time stock market gets a bad name because of the same... but if you remember Petyr 'Littlefinger' Baelish from Game Of Thrones: “Chaos isn't a pit. Chaos is a ladder. Many who try to climb it fail and never get to try again.” People often miss out on the opportunities that a chaotic or volatile market offers
What is Market Volatility?
Market volatility is the measure of a market or security’s tendency to rise or fall sharply within a short period. This is in formula measured by standard deviation. The imbalances in trade can cause volatility. The volatile market also shows many price fluctuations and/or heavy trading by investors.
2 strategy for a volatile market!
These are two strategies to help you leverage volatility for your own benefit.
1> Stay put -- Ignore Short-Term Chaos and Leave Investments Until the Volatility Passes
this is an effective and most commonly used method in a volatile market. This might sound lazy and not productive however to stay the course although the current overreaction of the market has proven to be effective on an average as it covers you from losses associated in short-term trading.
2> Buy: Purchase more Shares at Lower Prices leveraging the Market volatility
Volatility can also be a good entry point for investors who focus on a long-term investment strategy.
A falling market gives investors an opportunity who are bullish and are confident that the market will perform well in the long-run with an excellent opportunity to purchase additional shares at lower prices. Increasing your position at a discount rate is a unique opportunity. So What you are doing is, lowering your average cost per share of a particular investment.
So in overall such market volatility provides an excellent environment for those with long-term time horizons, So if you are a young investor, the current market gives you a great opportunity to increase their returns over a period by making additional investments at an excellent rate.