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How Can You Take Advantage Of A Volatile Stock Market?

Adhil Shetty

Q. The stock markets have been volatile for a while now, and news of underperforming industries, slowing revenues, and falling profits hasn’t helped in recent months. There’s also fear of a global recession and all sectors are affected. As a stock investor, is there a way to benefit from this scenario?

A. Just as no phase under the economic cycle is permanent, a slowdown is also not permanent. So this shall pass, too. However, since we’re in the middle of a slowdown, you can take certain smart steps and maintain financial prudence. Some of the key benefits you can make in this phase are:

Investing Consistently: Investors display negative sentiment during a slowdown and maintain higher liquidity to avoid capital losses. However, it is advisable to keep investing consistently as per your long-term goals, and to benefit from better rupee cost averaging. When the market revives, your portfolio will appreciate faster in comparison to those investors who had stopped investing during this period.

Diversify: Always invest in a mix of asset classes. For example, while the bond and equity markets have been singed in 2019, the value of gold has appreciated considerably. Therefore, smart investors who had diversified may have suffered losses in equity, but those losses would have been cancelled out by gains from gold.

Research Before Investing: Use online comparison tools and discount offers before making investment decisions. Make sure that you know what you’re getting into. Don’t make hurried, poorly-thought investments at a time like this.

Debt Consolidation: With a decline in interest rates during slowdowns, you get the opportunity to repay your loans at cheaper rates. This is a good time to make pre-payments on long-term loans such as home loans, especially if your finances allow for such payments. You can get rid of substantial debt at low costs. Timely repayment of debt will keep your credit history strong, thereby making it easier for you to get loans in the future.

Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil