How to adapt to market volatility?

An essential concept when we talk about investing is market volatility. It is part of the criteria to be analyzed when selecting the alternatives to compose the portfolio, with a significant impact on the results obtained.

Not understanding how this oscillation works can lead to errors that can lead to financial losses. Therefore, it is essential to understand how this movement takes place in order to create a strong investment strategy.

Want to know more about volatility and learn how to deal with it better? So keep reading and check out important tips!

What is market volatility?

Volatility indicates the frequency and intensity of price fluctuations in trading in investments. Thus, the greater the volatility of an asset, the faster and more intense the changes in its price can be.

Therefore, it is necessary to be aware that the most volatile investments can have large price changes in a short period of time. This is a variable that allows you to know if a particular investment is suitable for your profile.

A very volatile investment—for example, stocks—may be more sensitive to market fluctuations. Thus, it involves greater risk of losses and, on the other hand, greater chances of offering higher returns.

Volatility is usually stronger in variable income, being an important element for the possibility of higher returns. However, fixed income bonds also have swings of this type, even if they are to a lesser extent.

How to deal with market volatility?

Once you understand what volatility is, you need to surround yourself with strategies to better deal with it and take advantage of its potential to achieve the results you want.

See tips to do well in this task!

Learn how to measure volatility

For conscious decision making it is important to know how to analyze the volatility of an asset. This can be done in different ways, for example:

  • historical volatility — consists of measuring volatility from the asset’s price history and observing trends. However, it is necessary to keep in mind that past results do not guarantee the same behavior in the future;
  • implied volatility — predicts fluctuations, based on historical volatility and other data that impact investments, such as political events;
  • actual volatility — records the asset’s actual volatility as a way of reviewing implied volatility projections. Subsequently, it becomes the historical volatility.

Analyze the scenario rationally

Investors are often startled when they see a sharp drop in their assets. In this scenario of high volatility, what many people do is to rescue the money in the expectation of stopping the losses. However, this attitude can represent a capital reduction.

To avoid making mistakes when dealing with more volatile investments, it is essential to know your investor profile and select investments based on this information. It is also worth considering your goals and deadlines.

Profile classification helps you identify your relationship to risks and allows you to make smarter choices — avoiding unwanted risks. For example, more novice investors often fall into the conservative profile.

In this sense, investing in riskier assets is not interesting. If you want to give up a little security so as not to reduce the return so much, it is advisable to seek more knowledge to develop your profile and understand the most volatile investments.

This does not mean ignoring the safety factor. After all, careful analysis is always necessary. Think about it: a more conservative investor who has a bold portfolio is vulnerable to discomfort and greater losses, right? Therefore, attention is needed.

Thus, it is important to make a rational analysis of investments. Be sure to consider your risk tolerance and seek to learn more about the financial market. In this way, it will be easier to analyze fluctuations and identify the most appropriate time to change the portfolio.

Try to adapt to changes

The changes in the investment universe are fast and it is necessary to know how to deal with these movements. Some assets are especially vulnerable to external issues, such as the political landscape.

However, it’s important to stay focused on your goals so you don’t get shaken by these changes. It takes a broader look to understand what really matters in your financial strategy .

This care is important, in particular, knowing that long-term investments are not usually so affected by one-off movements. That way, you won’t suffer when you look at your portfolio and see some asset in devaluation.

Despite this, some changes in the economic scenario become lasting. In these cases, you may need to rethink your portfolio to achieve your goals. Small changes have the potential to mitigate risks without rushing.

Don’t expect quick results

When it comes to investing, it is important to think about the long term. The risks of variable income demand a longer time of the assets in the portfolio for them to offer better results. Longevity is essential, for example, for the accumulation of compound interest—interest on interest.

In order for your money to work for you, it must have time to fulfill this function. Pay particular attention to volatility. If you have a long-term investment and watch its movements, you will see ups and downs during that time.

But they tend to dilute in the long run, reducing the risks of loss. Therefore, the patience to wait for the performance to happen is a great ally for a more solid equity strategy.

Tailor your strategies to your goals

It is important to note that there is no ideal recipe for successful investments. Good results are related to your goals and how you plan to achieve them. Thus, it is important to review the strategies and choose the most appropriate options for what you want to achieve.

With this, the contributions can be planned to achieve the goals, adjusting to the particular needs. A good plan focuses on the deadlines, liquidity and profitability that each objective demands. Thus, it is easier to choose investments.

Understanding how to adapt to market volatility is critical to avoiding mistakes that compromise your goals. That way, you need to balance your needs and the alternatives available to get the desired results!

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