Investment strategies to protect against market volatility

Whether you are new to investing or have been in the market for years, volatile times can leave all investors feeling a little lost in the market sea, looking for a safe haven. Along with expectations of higher returns, early stage investors must also bear in mind the interplay of market forces such as inflation, rising interest rates and market conflicts. These are a troubling combination of macroeconomic factors that often tempt newcomers to withdraw from the market altogether and question their long-term investment strategies.

Market volatility, a statistical measure of a market’s tendency to rise or fall significantly within a short period, can be affected by interest rate tax changes, inflation rates, day traders, short sellers, and firms with high frequency and other monetary policies. and may also be affected by industry changes and national and global events. But one thing that is certain about market volatility is that it is inevitable. The market will continue to fluctuate between good days and bad days, and bumpy rides like these have many investors looking for portfolio strategies on how to navigate this market. While no one can predict the market’s future movement, there are strategies investors can consider implementing to help manage their portfolios through this volatility.

Protection against volatility

To navigate through volatile market phases, perhaps the most important solution for investors is to maintain a long-term horizon and ignore short-term fluctuations. One way to protect the portfolio is by selling shares or placing stop loss orders that can be sold automatically when prices fall by a certain amount or by buying Nifty Put or Bear Put Spread eg. using month-to-month contracts or long-term options, understanding portfolio composition.

Although, it should be kept in mind that hedging or hedging comes at additional cost and different bases have a different beta. And many times instead of perfect hedging, partial hedging can also protect your existing position.

Trading volatility with multi-asset funds

Investing in diversification, ie. holding uncorrelated assets and stocks in a portfolio can reduce the chances of overall volatility. Some assets in the market do not exhibit the same degree of volatility as stocks, and as a result, alternative assets typically lose less value and add stability. Therefore, unlike cash, alternative assets such as gold generate positive returns over time as gold tends to normally benefit from macroeconomic volatility.

Non-managerial investment

Unlike the most preferred directional investment options, in which the markets constantly move in one direction, which can be either long or bearish for shorts, in non-directional investors, investors try to move through market inefficiencies and price discrepancies. As its name implies, non-directional strategies are indifferent to rising or falling prices and therefore can succeed in bull and bear markets.

Invest in creating positions in stock futures

In a bear market, it is always advisable for investors to look at futures and options as a low-margin alternative to cash trading. Here, investors can focus on higher-growth stocks and high-margin businesses that have high margins and traditionally exhibit high standards of transparency and corporate governance. And, if you’re willing to dive deep and be more adventurous, then you can also check out volatility strategies like choke and throttle. These are your best bets and are more likely to have better results amid volatile markets.

Sometimes it’s good to do nothing

Being comfortable with your plan and portfolio is important, but so is knowing your tolerance for market volatility. As a common norm, the market operates on two strategies, when to buy and when to sell, however, there is a third strategy that does not get as much attention as it should, ie. knowing when to do nothing. And his basic rule is if you don’t understand the market’s undertone, then get out of the troubled water at the right time and do nothing.

Weathering the storm of volatility

When it comes to financial markets, risk and uncertainty are part of the deal that will never go away. While risks can never be completely avoided, adversity can certainly be mitigated and portfolio hedging is one way to protect a portfolio from a potential loss. This can help investors take on enough risk and arm themselves with effective protection until better days return.

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