Monetary investments are one of the most popular ways to improve wealth and resources. However, if markets are volatile, it can be risky to invest. According to Bankrate, 62% of investors intentionally avoided making a move due to high inflation, and 56% are not investing due to market volatility.
But why is market volatility affecting the investment decision?
A simple answer is uncertainty! Market volatility leads to decreased returns on investment. So, investors shy away from investing during periods of volatility.
Glen Arnold states, “Investors need to understand the underlying business, not focus on stock market price movements. Be a business analyst trying to understand what makes it tick, rather than a share analyst. Share investment is about businesses – when you buy a share you buy a portion of the ownership of a business!”
So, there is no denying that you need enough research, trust, and intuitive abilities to invest. However, you must factor in several internal and external factors before making an investment decision during a volatile market.
During confusing economic times, let’s discuss some of the essential aspects of investment. But, before we do that, here are some indicators of the confusing economic scenario.
Key indicators of a confusing economic period for investors
Economic indicators can be categorized as leading, lagging, and coincident according to the changes in economic activity. Therefore, investors need to be mindful of different economic indicators, data, and their impact on the market.
High-frequency data
Information about sudden changes and short-term predictions of the exchange rates are irrelevant if you are a long-term investor. So, ignoring high-frequency data is key to smart investments. So rather than spending your time on high-frequency data, it is essential to look at the business information.
Such information can be of profits, production, and other business activities representing the company’s future. Take an example of a startup. To invest in a startup, you need to research several aspects like the product, evaluation, pitch deck, and funding.
Similarly, investors should research the balance sheets, product development, business valuation, and capital investment.
Lagging data
Back-looking data or lagging information is related to the balance of trade, unemployment, regulations, and even crypto-tax. Such data acts as an indicator for the current economic scenario, mainly because they help understand the changes that impact the economy.
Coincident data
Leading information can coincide with the current and future economic scenarios. In addition, such indicators can help investors with data like purchasing managers' indexes, stocks, the real estate market, etc.
In other words, it can help you forge a reliable investment strategy. However, investing in a confusing economic market requires more than just research. So let’s understand some necessary steps to follow for investments during such a time.
Why do you want to invest?
Establishing investment goals is essential. It allows you to form a holistic view of what will be your financial needs. Investment goals need to be categorized into three main categories,
- Short-term
- Long-term
- Mid-term
Short-term goals need instant returns. So, you need to focus on the high-return assets and stocks which can provide profits in a short time. High-frequency data and investments are suitable for short-term goals. For example, the crypto market is a highly volatile financial market that constantly fluctuates.
According to Grandiewresearch, the cryptocurrency market will surge at a compound annual growth rate of 27.8% from 2022 to 2030. As a result, the cryptocurrency market will grow, but recent trends suggest high volatility.
Such uneven market changes make cryptocurrencies an ideal choice for short-term investments of smaller amounts. However, volatility does not hamper returns if you can choose the right cryptocurrency to invest in. So, finding the best crypto to invest in and fulfill short-term goals is essential.
Mid-term goals
Mid-term goals are not immediate but have a significant impact on your life. For example, if you plan to buy a house or a car in the next five years or even fund your child’s education within the next few years, these are mid-term goals.
Here, investment needs to provide enough returns and should be of moderate risk. This is why you need an investment advisor. Especially during high volatility and uncertain market situations, an advisor can guide you with smart investments.
You can choose the best investment advisors on a fixed pay or commission basis. The best way to select an investment advisor is to check the portfolio performance they have handled over the years.
Long-term goals
Long-term goals span over five years, and there is no upper limit. Retirement plans, long-term children's education, upbringing support, and more are some goals in this category. In addition, investments must be reliable, low-risk, and resilient to change for long-term purposes. In other words, sudden market changes do not affect such stocks or assets' value.
Now that you have your goals, it’s time to get to the study table!
Where to invest: Research, research, research!
Imagine giving a stranger the keys to your house when you go on your next big vacation! Will you do such a thing? Similarly, investing in a stranger asset or stock during high volatility in the market is like cutting the same branch on which you are sitting.
The best way to ensure wise investment decisions is to research business activities, balance sheets, procurements, production, sales, etc. As an investor, you must also consider external and internal factors that impact a business.
You need to research the customer relationship with the company you are investing in. It helps build long-lasting associations and relationships with customers. Better relationships and association means growth.
Here, customer relationship management(CRM) takes center stage. Having a good CRM platform becomes crucial for companies for enhanced customer relationships. However there are many CRM use cases and examples, but as an investor, your focus needs to be on customer perception and sentiment analysis.
However, research is not everything, and you need to use specific strategies to ensure resilience to negative market impact.
How to ensure stability during an unstable market?
An unstable market is a prime indication of negative customer sentiment and massive cash out-flow. However, savvy investors can benefit from unstable markets the most through strategic asset allocations.
Kevin O'Leary says, “Never spend your money buying a single coat. Diversification is the best strategy to stay ahead in any market situation!” In other words, diversification of asset location can make your portfolio resilient to sudden market changes and provide good returns in the long term.
So, here is a simple strategy to follow for your investment journey!
- Set the investment goals
- Research your stocks before investing
- Diversify the allocation
- Track each stock through the time
- Book profits when the time is right!
Booking profits is also an essential aspect of the investment journey. During the sudden surge, you can bank on short-term assets and book profits to invest in long-term assets.
Conclusion
Constant changing geo-political environments, government policies, taxation, market positions, and other factors impact economic activities. So, an investor needs to be mindful of all the elements, research companies, and formulate a strategy for investing. Investment gurus provide thousands of tips, but which one will follow will differ for every investor. So, start investing in your dreams with some smart moves to battle uncertain market situations.