Staying clear of volatile financial markets

While everyone may aspire to save some extra cash, it’s still not universal for people to wholeheartedly commit what cash they do save in investment funds or in the wider financial markets. It’s easy to see why: with the financial crash of 2007 estimated to have slashed around $10tn from global growth, many potential investors have been scared off. However, the good news is that there are plenty of ways to stay away from volatility and to manage it where it does exist. Here’s how.

Certain asset classes

In some cases, volatility can be hedged by the individual investor using strategies and techniques – but that’s not always the case. Put simply, there are some financial markets thatare inherently highly volatile in a way that could lead to a total wipe-out of investment capital. Perhaps the most obvious example is cryptocurrency: in 2018, for example, Bitcoin Cash saw drops of several percentages points within days. For some people, this sort of volatility means that the instrument in question should be avoided. For others, it simply means that it ought to be included – but as just a small fraction of a larger portfolio.

Even long-established markets can be volatile. Pairs of global currencies in the foreign exchange markets, for example, can often lose entire percentage points of value in the space of a week. By staying up to date using information providersincluding https://www.fxexplained.co.uk/, you’ll be able to watch out for the next key indicator of volatility – a central bank interest rate announcement, perhaps – and act to mitigate its effects.

Diversify your portfolio

As mentioned above, there are also some things thatyou can do as an individual investor to reduce the amount of volatility you might face. The main way to do this is through diversification, which essentially means not pinning all of your hopes on one investment destination. Say you have £100,000 to invest: instead of placing all of that £100,000 into the same investment vehicle and therefore exposing your entire investment capital pot to the potential problems of one market, you could place half of it in a relatively “safe” investment such as a fixed-rate bond while placing five chunks of £10,000 in slightly more volatile markets. That way, you’ll be able to get some returns from those volatile places thatend up performing well, and will reduce the risk of you losing everything.

Check out providers

If you’re going to expose your capital to market fluctuations, then it’s wise to be sure that you’re not running any further risks. This means that you should always take steps to be sure that you’re not also at risk of fraud: by checking that your chosen broker or provider is authorised by the Financial Conduct Authority, for example, you’ll be reducing the risk that you invest your cash with an illegitimate, volatile provider that may go out of business at any time.

Volatility can never be fully avoided when it comes to trading in the financial markets, but there are some key ways that it can be managed. Whether you choose to go for safer asset classes, to diversify your portfolio, or to simply arm yourself with relevant information, defending yourself against volatility is certainly possible.

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