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The Impact Of Market Volatility On Personal Investment Decisions

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  • Finance
  • 7 min read

Market volatility has been a regular feature of the financial markets over the last few years. While most investors have seen market fluctuations during major events such as the 2008 Wall Street Journal, 2011 Italian Financial Crisis, and 2016 European Elections, these events are not the only time market prices change.

Market prices fluctuate both in quality and quantity throughout the course of a year, month, week, and day. For example, stock prices vary between $10 and $20 at times, while bonds typically do not go up in value quickly.

Market price movements can have a significant effect on your personal investment decisions. For example, if you were planning to invest your savings in stocks for now but saw how market price changes were affecting your money, you could decide to leave it alone or take some steps to protect yourself from these changes.

This article will discuss some of the impact stock markets and financial markets can have on an individual and their savings.

Review your portfolio

Having a diverse set of investments can help protect you against market volatility. If you have a lot of stocks in your portfolio, for example, that are mainly located in one sector, then you can easily move your money around to ensure you are getting exposure to all the major sectors.

In fact, having some stocks in every small cap and large cap company you see financials and over-the-top stocks is a common sight. The premise is that during times of uncertainty or stress, people will want to protect themselves with an investment they know they will use often.

This is another reason to have more modestly valued stocks than ones that are worth a lot. You will have easier access to help if you have ones that are undervalued.

Adjust your investment strategy

As the term market volatility describes, our economy is in the midst of a period of intense change. During this time, you should pay attention to how your investments respond to changes in market activity.

When markets are down, quality stocks that respond well to changes in valuation tend to be best-of-the-breed investments. When markets are up, value stocks tend to be better-performing assets over the long term.

Investments that do not respond well to movements in value or income seem like overpriced troublemakers. If you find yourself constantly rethinking your investment allocation, it may be time to look at other strategies.

This article will discuss some ways that lower and middle income investors can protect their positions against market volatility by using active management styles or individual securities.

Consider investments that are less volatile

Largely excluded from financial planning are investments that are very volatile or highly fluctuating in quality. For most of us, a large and consistent income is enough security to not let such a volatile investment status rule as you.

However, for those who find that more conservative investments work well with their lifestyle, then this can be an important consideration.

For instance, if you find yourself investing in stocks that sell for around $10 per share, and the value of your investment declines to $8 per share by the end of the year, you would still see a noticeable return on your investment.

This is an important consideration to take into account as it can play a role in personal investment decisions.

Seek advice from a financial advisor

It is also important to seek advice from a financial advisor that does not focus solely on the market. Although the market is a huge part of the economy, there are many other parts of the economy that affect your portfolio.

The term financial advisor can mean different things for different people. For example, if the person you are talking to has an investment strategy that they promote and recommends investments such as stocks, ETFs, and direct equity investments, then yes, this may be an authoritative source of information about investments.

However, if this person also has recommendations for cash and safe investments, than yes, those people may have a poor impact on your investment decisions. While both can have negative effects on someone who relies only on the markets for income, having both in their personal portfolio helps mitigate these effects.

Understand your personal financial situation

Before making any personal investment decisions, it is important to understand your personal financial situation.

There are three main areas of a person’s life that can affect their personal investment decisions: family, career, and fun (or not).

Family can be characterized by its high spending habits and needs. Even though they may use investments for security and growth, family members have a difficult time regulating spending as an entire unit.

Because of this, family members who are able to appropriately control their spending may find it easier to adjust their investments than someone who does not spend.

A career can have its ups and downs, with changes in jobs and expectations coming up. Finally, a person’s fun – or not – can have a significant impact on how they manage money in the long run (see below).

Rebalance your portfolio

When the market is volatile, it is important to be aware of your portfolio’s status. If your portfolio is growing at a rapid rate, then it is time to add new securities to your holdings.

If you see your investments are growing at a slow or nonexistent rate, then it is time to move some of your holdings up or down. You should not cut your portfolio size unless you have enough funds in other securities to make up the difference.

Having a well-balanced portfolio can help prevent any one asset from being Spotlighted and having a large impact on your life and savings. If one asset such as stocks or cash feels more important than the others, then only selling those will help remove stress on them.

If you see yourself moving assets around in your portfolio often, then it is time to invest in the stock market.

Stay the course

Despite the challenges market participants face, it is important to stay the course. It is your responsibility as an investor to choose companies that are a fit for you and your goals freedom kickstarter pitch, and it will help you in the long run.

Being prepared means having information about upcoming milestones and announcements that impact a company, including potential acquisitions.

It also means continuing to monitor companies as they achieve their goals, even if they are not always the company you first imagined when you started following the industry.

If a company does not meet its goals, then it can still benefit from continued exposure to the market as they become successful again. By staying involved in the industry, you are helping grow the rest of your career outlook on personal investment.

Be patient

When the market is declining in price, it is important to be patient. If you are more inclined towards investing in companies that fail rather than those that succeed, you should consider this element of the article.

Despite the fact that there are always going to be losers and never winners, it is hard to justify investing in a company that is not going to make you a lot of money in a long time frame.

If you are looking at this as an early-stage investment, then yes, being patient can help you save money in the short term. However, over the long run, your savings will be bigger because of your more prudent behavior.

Be honest: Do you feel like this sounds too dramatic? Yeah, me too.

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