There's standard stock market volatility, and then there's the stock market during a global outbreak and pending recession. Surprisingly, deciding what to do with equities in either environment will likely involve the exact same criteria. At all times, the worst stock market decisions are made from fear. It's what fuels panic, crashes, sell-off runs, and, for many, huge losses. Instead, let your inner cooler head prevail, and consider the following tips for dealing with stock market volatility.
Criteria such as 30, 100, and 200-day moving averages, and increasing or decreasing numbers of trades can indicate where a stock is going. If you're looking to buy, glance at the one year and five-year history of the stock, and make note of any seasonal ups or downs that occur regularly. If you're looking to sell, and the price is up, scan the charts anyway to make sure you are not giving up a stock that can ride out market volatility.
Dividend stocks provide a bit of shelter in a storm, but only if the dividends are coming from companies that make a habit of increasing them regularly each year. These companies tend to be blue-chip, high value, and usually have lasting value through good and bad times. Check their dividend histories to see who treats their shareholders consistently well, and if you have those stocks already, hold on to them.
Global health crisis, political conflict, mass consumer behaviors, rising interest rates, a crashing major sector – these are macro events that impact the stock market in ways that cannot be ignored. What you need to assess is how they might affect a particular stock that you hold or want to buy. Be aware of the difference so you can identify opportunities and hang on to stocks that may buck the trends.
Tracking sales figures is an excellent way to gauge the worth of a company and its stocks. Smaller companies, with annual sales up to $1 billion, should grow at least 10% annually. Larger companies should be growing by at least 3%. This growth assessment can get much trickier in times of recession when sales tend to slow, but the history is always there to consult. Let it be one of the factors that guide your choices.
When a company buys stocks back from the marketplace, it may be a sign that stocks are undervalued and that the company is doing well. It can mean future earnings will be spread across fewer shares, making earnings for shareholders higher. Unfortunately, stock buybacks can also be a tactical attempt to strengthen a company's financial statements. Some analysts will be able to see through this and correctly evaluate both the company and its stock.
Any advisor worth their salt will conduct periodic tolerance surveys with their clients to determine who is risk-averse. This is especially important as a downturn looms. But even for those who simply cannot stomach their stocks ever losing value, a well-balanced portfolio will almost always include some risk. If you are averse, you should be buying GICs or bonds instead of stocks.
Even the most staunch investor will need to assess their position carefully if they are within a few years of retirement. That said, if your financial plan has been solid all along, some checks and balances should be built in to protect you in case of a downturn. These may be bond index funds or blue-chip dividend funds. Just bear in mind that they may offer steady, but diminished returns.
Even if you're committed to staying the course and holding on to your stocks, scheduling a conversation with your financial advisor or stockbroker isn't a bad idea. They can provide insights on trends, information about market history, and reassurance that the market will right itself in time. But if they try to pressure you into a course of action, either buying or selling, you might want to consider getting a new advisor or broker.
Some of the largest profits made on the stock market accrue to those who identify innovation early and invest in it. It's literally the luck of the draw what will happen with a new company or product, but if you know your sector and what it needs, it may be obvious which venture companies or IPOs stand a chance of success. Many millionaires made their fortunes this way during the tech boom. Of course, you also may need to be lucky on the timing for cashing out as Shopifys, Googles, Amazons, and Apples don't come along every day.
Beware media outlets and the writers of company press releases. The financial media tends to sensationalize, especially in times of strife and struggle. And sometimes you have to read between the lines, even in communiqués and reports from trusted analysts. Learn to interpret the language being used. Muted language can denote gloom; upbeat or neutral language can indicate promising developments. Take it all with a grain of salt – because nothing beats reading the financial statements yourself.
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