While most investors know the stock market will have its ups and downs, few are prepared for the volatility these swings create. This can be seen in how investors have been scrambling to reach the recent sell-off in the broader markets over the past two months.
As such, the real question is how investors can position themselves in times of market uncertainty. One option might be to keep all your cash in your mattress, but that is no way to achieve alpha. As such, there must be a better way and here are five proven investment strategies in volatile markets.
1. Land, they are Not Making Any More of It
Well, maybe they are in Hawaii but for the rest of the world,land is a finite resource. As such, investments usually deliver decent returns for investors. This doesn’t matter if you are buying up investment properties in the northeast or are pursuing a buy-and-hold strategy in Oregon Land. Either way, adding land to your portfolio is usually a risk-free way to make sure you are protecting your money when markets get choppy.
However, you do want to be mindful of how you are financing these acquisitions and what types of yields you can achieve. This is how a lot of “investors” got into trouble during the mortgage crisis and as such, you will want to pursue a land acquisition strategy which allows you to use leverage withoutgetting yourself overextended.
2. Don’t Get Emotional
Maybe you thought the second strategy would be bonds or gold or even cryptocurrencies but the first thing you want to do when the markets get unnerved is to keep your head. Making emotional investment decisions can often lead to massive losses. As such, need to keep calm and position yourself for the long-term.
While this is often easier said than done, the point is that you need to keep calm when deciding to do with your money. As such, when the markets are down, it is not the time to hit the panic button. As such, you want to make sure that you always have your stop-loss targets in place and have a plan to execute – especially when you need to close out a position quickly.
Another thing to keep in mind is that broad sell-offs are usually following by rallies, or at a minimum a period of relative stability. We’ve seen this several times over the past couple of months and these relative “lulls” are a great time to reassess your positions from a rational perspective and then get ready for what comes next.
3. Don’t “Time” the Market
Nobodies know the market is going to do next. Let’s face it, if you did, then you probably wouldn’t be reading this article. What’s the lesson here? Don’t try to time the market. Sure, you’ve done your homework and you’ve developed your investment thesis, but the reality is that you won’t really know how it plays out until trading begins.
Remember what Mike Tyson said: “everyone has a plan until they are punched in the face”. Well, this saying rings true when it comes to investing and it is a big reason why those who think they are smarter than the market usually ends up losing everything.
4. Don’t Put All Your Eggs in One Basket
Investing is not like making an omelet and as such you want to make sure that diversification is a key part of your strategy. While the exact mix of assets will depend on your investment goals, it always pays to spread your investments across several classes.
This diversified approach should help to protect you from the ups and downs in the broader market by making sure you are not overweight in any one area. For example, your investment focus might be in stocks but during times of uncertainty, you might want to shift your money into bonds, property, or even emerging markets.
Doing so will give you peace of mind by ensuring that your entire investment portfolio isn’t at the mercy of what is happening on Wall Street.
5. Tax Harvesting
What is tax harvesting? It is the selling of assets at a loss to help offset tax liabilities from other investments. Granted, the point of investing is to make money, but the judicious use of tax harvesting can help you to lessen your tax bill.
To benefit from tax harvesting you will need to adhere to what is known as the “wash sale rule”. This simply says that you cannot purchase the securities which you just sold within 30-days of the sale.
However, if you want back in, you can acquire an ETF which does include the stock. This basically allows you to have your cake and eat it too as the ETF might even outperform the stock you just sold.
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