How To Make Money In a Down Market: Market Volatility, Stock Market Seesaw or YoYo

Market Volatility: How to Cope with the Stock Market Seesaw
Coping with Stock Market Volatility

Many investors are concerned with volatility in the stock market as this new year starts. They fear that their nest egg is going to be wiped out by the credit crunch, a troubled housing industry with suprime mortgage defaults and the potential for further difficulties for hedge funds, banks and financial service companies. There is no doubt that hedge fund trading adds to the market volatility.

Volatility and risk are two different things. It is worth making the difference between them. Volatility is characterized mostly by a security, commodity or market that rise and fall sharply within a short-term period. Now how about risk? It is the possibility of an investment losing value.

So if you are a mutual fund investor who is concerned about volatility in the stock market, here are a few things you can do to reduce the volatility of your portfolio.

1. Make sure there is a good line of communication between you and your financial adviser. Go ahead and meet with your financial adviser to re-examine your investment goals, risk tolerance and financial circumstances. Now that you are at the start of this new year, this is a good time to do it. Talk about any changes that may occur in your investments. If you have changed jobs or decided to take an early retirement, here is a good time to start talking about these topics. Ask yourself many other questions. Did you get married? Did you have a child or become a grandparent? Has there been a divorce? Is your son or daughter needing money for college? Does your investment mix still make sense or put you at ease or in sync with your goals?

If you are in a volatile market, you may want to re-examine your strategy, even though you might not want to make major moves. Have you considered buying more shares of your mutual funds when prices are down? Everything depends on your personal situation. Remember that you are in it for the long term. If nothing has changed, then it may be a good idea to change your financial plan. Many investors often feel a sense of panic when things are not going the way they expected them to. So they hurry to pull out. That is a major mistake. Patience is a virtue that needs to be practiced at this point. History shows that the market has recovered.

2. The other thing you should do is to diversify your nest eggs. The idea is to spread your risks by investing in a carefully selected mix of mutual funds that invest in stocks, bonds and money market instruments. It is good to have a mix of domestic, international and global funds. Keep in mind that in the past few years, international equity mutual funds have generally done fairly well or even better than U.S.-focused mutual funds. Discuss other risks such as currency fluctuations and different accounting standards.

3. Invest in volatile markets. The idea is that volatile markets do not have to be seen as something to be feared and stay away from. Investing at regular intervals helps you pick some good companies. You can buy more shares when the price is down. Buying good companies at lower prices through your mutual funds is the name of the game. Very few people will want to continue making investments when stock prices are declining and stock market news is negative.

4. During market volatility, make sure to invest for income. Count on the dividend when the stock price is going up or going down. Stocks that have a history of paying regular dividends have tended to fare well. The stock prices of the companies may be affected, but that does not mean these companies are faring poorly. Think about bonds and money market instruments which tend to produce a steady flow of interest payments. They can help cushion your portfolio during stock volatility. Now that you know how to manage your funds, take advantage of any combination of instruments that may help you make money.
http://microcreditcapital.com/financialmatters/marketwatch.html
http://microcreditcapital.com/financialmatters/marketwatch.html
http://microcreditcapital.com/financialmatters