In 2017, around 54% of Americans owned stocks; this was either directly, or as part of a fund. Whether you’re one of those Americans or you’re considering getting started on investing soon, you may need some help on making the most of your money.
If you’re worried about volatile stocks, here are 7 tips for investing in today’s market. But first, we discuss volatile stocks briefly. By knowing what they are, you’ll avoid the extreme ones more efficiently.
What Are Volatile Stocks?
As you know, stocks rise and fall in value all the time on the stock market. However, some will do it more than others; these are volatile stocks.
What defines volatility? It’s the stock’s price change standard deviation compared against its value at any given time. It can also be the fluctuation of the stock’s value in comparison to a benchmark.
The volatility of a stock is measured as a beta. For instance, if a stock has a beta of 1.5, that means it’s moved 150% for every 100% of the market index’s move.
Having high volatility isn’t always bad, considering the fluctuations can be either positive or negative. You just have to invest wisely to make the most of a volatile stock. Read on to find out 7 of these tips.
1. Consider Dollar-Cost Averaging
Normally, when you make an investment, it’s a “one and done” deal. You invest $10,000 in one stock, then let nature take its course.
With dollar-cost averaging, instead of making a one-off investment, you split that amount and invest over a period of time. For example, you’d take that $10,000, divide that amount into 10 equal parts of $1,000. Every month for the next 10 months, you invest $1,000, regardless of how the stock market is doing.
This type of investing can help keep you calmer and more collected about your money. The only downside is you may miss out on potentially higher returns, but that shouldn’t matter too much in the grand scheme of things. You may also face more brokerage fees.
2. Put Away Your Ticker Apps
If you’ve put a significant amount of money into stocks, it’s natural to feel worried about it and to want to check up on its value all the time. But this will only stress you out, especially if you plan on doing this for a long time.
Not only will it take a toll on you, but checking the ticker can actually also become an addiction or compulsion. It can easily take over your life and cause you to miss out on key moments with your loved ones.
The small day-to-day fluctuations of your stock value won’t be significant enough to affect you much, so restrain yourself from checking up on it constantly. Allow yourself a few times a week to do so and put away your ticker apps for the rest of the time.
3. Invest in High Dividend Stocks
High dividend stocks can allow you to be more pragmatic with your money, even when the stock value falls. You’re still earning income from the dividend, so there’s not as much fallout from the decreasing stock value.
Not only that, but the dividend income generated also helps to stabilize the volatility of your stock. Over time, you’ll see higher average gains.
4. Keep Track of the Big Picture
If you’ve experienced huge losses lately, don’t let it bother you too much. Even if it’s been months and you’re still suffering losses, you should still keep a positive outlook.
If you look at Wall Street news, you’ll see that even though there have been downswings, things always turn around. The overall trend of the stock market is a steady upward rise, so don’t be quick to jump ship if you suffer temporary losses.
5. Start Investing Early
If you’re interested in investing in volatile stocks, the best thing to do is to start early. The closer you are to retirement age, the shorter amount of time you’ll have to let any losses recover.
Those in their 30s (or even 20s) should already think about investing since it’s never too early to do so. While stock traders are focused on the daily fluctuations of the stock market, you should be focused on the long-term effects.
Because of this, if you’re only a few years away from retirement, you should invest in more stable things, such as real estate or bonds. While these may not have as huge returns as volatile stocks, they’ll be a more reliable investment.
6. Diversify Your Investments
You know the saying: don’t put all your eggs in one basket. If you put all your money into one stock, when it decreases sharply in value, you’ll suffer a tremendous loss.
Try and spread out your money. Invest in different companies, parts of the world, industries; whatever you can diversify in, do it.
When you spread out your investments, you may suffer losses in one area but enjoy amazing gains somewhere else. This gives you more stability in a volatile market.
7. Work with a Financial Advisor
Working with a financial advisor can be hugely beneficial. Not only can they recommend investments for your personal situation, but they can also rebalance your portfolio.
Since they’re an expert in their industry, a financial advisor can also serve as a voice of reason. They can be especially reassuring when there are significant market swings.
Follow These Tips to Invest Wisely
When it comes to volatile stocks, they shouldn’t be something to avoid. Considering they can fluctuate in value significantly, there’s a good chance it can be in a positive direction.
In the end, stocks always recover, even when there are big losses. So the best thing to do is to start investing early on in life. That way, you’ll reap the benefits in the long run.
If you’d like to learn more about how to handle your money, then please check out our personal finance section.