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10 Top Tips for Managing Investments Amid Volatile Stock Markets

Billy Toh

February 17, 2022

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Stock markets tend to go up and down. However, when it happens at a rapid pace, it can be quite scary.

This is called market volatility. While it can be unsettling, volatility is a normal part of long-term investing.

It can be difficult to keep a level head when one is already in the throes of market volatility. But history shows us that you will more likely achieve your investment goals if you have a plan and stick to it.

Veering off course from a well-planned investment strategy can have a negative impact on your investment goal as it can turn a temporary loss of confidence into a realised loss for your investment portfolio.

So to help investors stay calm, here are 10 tips that can help you better manage your investments during a period of market volatility.

1) Use Dollar Cost Averaging

My colleague, Tim, has actually written about whether you should use dollar cost averaging when investing back in 2021 and I think it’s timely to revisit his article.

In short, making smaller investments at regular intervals helps us to suppress our human impulses to sell at a loss or chase high-flying stocks at insanely high prices.

2) Volatility is normal

It is inevitable for long-term investors to experience volatility. Bear in mind that volatility is the result of how investors react to economic, political and corporate developments.

While some of these reactions are justifiable, it is worth remembering that most business fundamentals do not change overnight.

If you are prepared for the volatile markets, you will likely to be more rational in your response to it.

3) Reinvest dividends to increase total returns

Reinvesting dividends will provide a boost to your total returns over time, thanks to the power of compounding.

This will also help investors to reinvest into the company in a downtrend market, taking advantage of the lower cost.

4) Diversification is vital

One of the best ways to mitigate the volatility in your portfolio is through diversification. This is because investments in different asset classes and sectors vary in risk and volatility.

By diversifying your portfolio across asset classes, sectors and regions, this will help to reduce the effect of volatility.

5) Don’t be swayed by sentiment

It is very easy for long-term investors to be swayed by the latest investment themes and media headlines.

One of the best ways to avoid being swayed by sweeping sentiment is to take discriminating views on investment themes.

Don’t allow the hype or pessimistic views of the majority to affect your long-term goals.

6) Stay Invested

It is important to stay invested despite market volatility. You can benefit from the market’s long-term uptrend eventually.

Historical data show us that it is time, not timing, that is key to investment success.

7) Corrections offer opportunities

In the real world, people like to go shopping when there’s a discount. However, for some reason, when it comes to investing, the majority of the people only like it when the stock market is on an uptrend.

Personally, I think investors need to take advantage of the corrections in the market to buy stocks at a more attractive valuation.

8) Invest in quality stocks

I think it is important for investors to focus on the quality of the companies that they invest into.

I have written on some of the questions for you to ask before you buy a stock in 2 parts to help identify some of these qualities.

You can read about it at Investing Checklist: 10 Questions to Ask Before You Buy a Stock (Part 1) and Part 2.

9) Examine your personal tolerance for risk

No one likes seeing prices move against them but it is important to ask if you can take the risk associated with the current market downtrend.

If it is too difficult for you to stomach the current market downtrend, you may want to determine a more conservative investment mix that can alleviate your anxiety while you pursue your financial goals.

Having said this, I think investors should have done this examination prior to starting their investment journey.

10) Risk outperforms in the long-term

It is important to remember that risk outperforms in the long term. What I mean by this is that equities, which carry a higher risk as compared to holding cash or government bonds, have outperformed over the long run.

You may read about the average return of the stock market in order for you to have a realistic set of expectations.

Stay the course: slow and steady wins the race…eventually

It is important to know that no investment can offer guaranteed returns.

Staying the course during the short-term market fluctuations will help your long-term outcomes when investing in volatile markets.

It is, however, vital to ensure that you have a diversified portfolio to weather the storm.

About the Author: Billy Toh

Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.