How To Protect Your Investments in Volatile Markets
Written by
Brooke Barley
Edited by
Zuri Anderson
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One of the biggest risks with putting your money into investments is the volatility of the market itself. This doesn’t mean you should forgo investing altogether, but it does mean that you need to be strategic.
Here are expert methods to protect your money, so even when the market dives, you’re still in good shape.
Assess Your Risk Tolerance
Part of an investment strategy is personal. You need to know how many ups and downs — and how drastic — you can tolerate. Jordan Mangaliman, CEO and fiduciary wealth advisor at GoldLine Wealth Management, explained that to be successful at investing, you need to plan out how much you can afford to lose.
“If you need more funds for an upcoming purchase, it may not be wise to invest aggressively,” he said. “However, by keeping a long-term perspective in mind, you can smooth out your investment experience by not being reactive when the market has corrections.”
Diversify
The key to steeling your portfolio against economic volatility is to invest in many different assets.
“Every portfolio should have some exposure to stocks, bonds and alternative investments,” explained Robert Varghese, the head of investments at Groundfloor Finance.
“These asset classes are not perfectly correlated with one another. That means when one market goes down, the others will either go down less or move in the opposite direction. Thus, ensuring that your overall portfolio remains steady and doesn’t suffer too much in a potential downturn.”
Trade Stocks Skillfully
If you’re just focusing on stocks, Michael Martin, the vice president of market strategy at TradingBlock, said you can minimize your risk with the right strategy.
“With stocks, I usually do one of two things: Cut the position size or hedge with put options. For example, AAPL is trading around $250 right now,” according to Martin. “To limit risk, I could buy a $230 strike put for $4 ($400 total). If Apple drops below $230, every dollar I lose on the stock is offset by gains on the put. But since I paid $4, the real protection starts at $226 (strike minus premium).”
Revise Your Portfolio Often
There really isn’t a “set it and forget it” method for investing. Instead, Mangaliman recommended tweaking your portfolio regularly to reflect your current financial standing and goals.
“Oftentimes we see portfolios with allocations that have not been updated for over 20 years,” he noted. “By aligning your investments with your risk tolerance, time horizon and proper rebalancing, you can better be prepared for a market downturn.”
Mangaliman added that meeting with a fiduciary advisor often can help refine your strategy with the help of a professional viewpoint.
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