What every investor should know about investing in volatile markets

Whether a beginner or a pro, every investor needs a long-term approach to weather jumpy markets.

“When the market’s down, some investors panic sell. Fear can shrink your perspective and make you focus on cutting your losses. But if you’re not pressed to sell right now, you might be kicking yourself later if prices rebound,” Ms. Lucreziano explains.

It can be tempting to exit the market by selling and lay low while waiting for the market to stabilize. The challenge is knowing when to get back into the market if you sell. When investors sell everything, they often jump back in too late and miss the market’s recovery rally. “History has shown that those who stay invested during tough times often reap the biggest rewards,” she says.

Investors can do research. There are many good Web articles that offer general information about how to start investing as well as online tools that can help calculate potential investment growth. When markets are down, it can be a good time for new investors with cash on the side to get into the market. There’s more chance for gains and less downside risk, as markets have already eased.

In general, investors should buy into companies with strong fundamentals. “Look for a history of consistent earnings growth, a solid balance sheet and a competitive advantage in the industry,” Ms. Lucreziano adds.

“Consumer staples, like food and household items, and energy are usually more resilient in tough times. We all need to eat, and most of us need electricity or gas to run our homes and cars.”

Exchange-traded funds, or ETFs, can be a good option in volatile times, because they offer exposure to a broad range of companies without having to buy and monitor individual company shares. “This lowers your overall risk while still giving you potential to see gains if there’s a market upswing,” Ms. Lucreziano says.

Companies that pay dividends should not be overlooked either. Even when these companies’ stocks rise and fall in volatile times, their dividends still provide regular investment income that can cushion any blows as other parts of a portfolio dip.

“Don’t just pick something because it’s cheap — pick something that has good value for the price,” she adds.

Whatever you do as an investor, it can be helpful to talk to an advisor Opens in a new window.. They’ll be able to provide insights into which investments have good long-term growth potential.

Some stocks stand out because they look stronger than others, but it’s important to remember there are no guarantees in investing. It’s important to have a diversified portfolio, so that if a particular investment or sector hits a rough patch, this can be balanced with different types of investments and industries that can weather varying storms — particularly when markets are volatile.

“We’re riding some bumpy terrain right now, and a diversified portfolio is like a bicycle helmet for your portfolio — it could mean the difference between a scratch or a concussion,” Ms. Lucreziano says.

A diversified portfolio can include:

• Blue-chip stocks
• Guaranteed investment certificates (GICs) 
• Dividend-paying stocks
• Exchange traded funds (ETFs)
• Mutual funds
• Real estate investment trusts
• Gold and precious metals

Another good risk management strategy is to deploy dollar cost averaging — buying more of a stock you already have when prices dip, so the average cost per share is lowered.

“Risk and reward go hand in hand, but investing in a volatile market doesn’t mean you have to throw a ‘Hail Mary’ pass. It can pay to be patient and not get caught up in the hype. It’s not a bargain if it’s not something you really want.”

She recalls how legendary investor Warren Buffett once said, “It’s wise to be fearful when others are greedy, and greedy when others are fearful.”

“In challenging markets, it’s even wiser to be clear-eyed,” Ms Lucreziano advises.

Originally published in The Globe and Mail, June 2023.