Introduction

Don't panic! Let's Master the tips and tricks of a volatile market.

The market has been experiencing upsurges and declines (ups and downs) that are not gradual, they are abrupt and rapid. The Indian stock market has been on a roller-coaster ride, showcasing frequent changes in the market, especially in 2024. Market volatility has been fueled by a combination of factors: global events, general elections, economic concerns like inflation and rising interest rates, unverified speculations, and fluctuations in currency exchange rates.

Indian Express quotes “ India VIX, which is an indicator of the market’s expectation of volatility over the near term, surged past the 21 mark (considered high!) on Tuesday (May 14). This volatility was attributed to the general elections in May 2024.

Fearing market volatility, many investors adopted the “bolt” strategy, leading to panic and severe losses, especially novice investors. Such investors unduly doubt their strategy, leading to irrational sellouts.

Such market volatility needs to be handled with care. Here are some do’s and don’ts that can help your ship sail through the stormy weather.

Do's:

• Focus on Long-Term Investments: Panic selling during volatility can lead to steep losses. Don't let temporary fluctuations cloud your judgment. Stick to your long-term investment plans and trust your investment strategy. Think of it as a marathon, not a sprint.

• Embrace Diversification: "Don't put all your eggs in one basket" is a key principle for all investors, especially during volatile times. Diversification can benefit from upswings in certain asset classes while protecting you from significant downswings in others. Essentially, when some parts of your portfolio underperform, others can average out the losses.

• Cost Averaging Technique: Instead of rushing to sell during a market downturn, consider it an opportunity to buy high-quality shares at a lower price. This "rupee-cost averaging" technique lowers your average purchase price over time.

• Rebalance Your Portfolio Regularly: Market volatility can cause the mix of investments you hold (asset allocation) to get out of balance. Regularly rebalancing your portfolio ensures that your investment ratio in each asset class stays aligned with your desired mix and risk profile. Make sure to analyze your risk tolerance periodically as well.

Don'ts:

• Don't Absorb the Headline: Negative headlines like "market crash" or "downfall" can cloud your judgment and lead to emotional, irrational decisions. Don't let them dictate your investment strategy. Stay calm and focus on your long-term plan.

• Don't Time the Market: Trying to predict market ups and downs and entering and exiting at the "perfect" time is nearly impossible. It's often just speculation and can be costly. During volatile periods, a "wait-and-watch" approach is often wiser to avoid getting caught in the market's short-term fluctuations.

• Don't Follow the Herd: Don't blindly follow the crowd, especially if everyone is selling or panicking based on rumors. Independent thinking and critical analysis are crucial during volatile times. Just because everyone else is doing something doesn't mean it's the right decision for you.

• Don't Forget Your Fundamentals and Strategy: Stay confident and stick to your investment plan. Don't let volatility shake your resolve. However, use this as an opportunity to review your investment fundamentals and make adjustments to your portfolio if necessary.

Conclusion:

Market volatility is an inevitable part of investing. Even experienced investors face it. While things can get tough, staying rational and well-informed will help you navigate these periods. Keep calm, stay confident, and stay updated on market developments. If needed, seek professional guidance, especially when you're unsure about how to handle a volatile market situation.