Mitigating Investment Risks In Uncertain Times
The pandemic outbreak in 2019 and its sustained effects till today, coupled with the recent price hikes across the world, have put the investment market on a rollercoaster of tides between highs and lows over the past few years.
While it’s easy to stay calm and focused on your long-term financial goals when investments are doing well, keeping the same focus during periods of uncertainty or high market volatility is tricky.
Although it may be challenging to predict what investors might face in the future, the strategies to mitigate investment risks in uncertain times remain the same, even if the kinds of investment opportunities available are radically different.
Here are a few such rules that have helped investors and leading investment firms weather challenges in the past during periods when uncertainty abounds.
Focus On Your Goals
Your goals should always be able to guide you through how to build and maintain your portfolio in times of uncertainty while mitigating risks. While the underlying assets you own may change, your goals should always have the same amount of permanence.
For example, one of your investment goals can be retirement, buying a house or paying for your child’s higher education. While the approach you take to reach these goals may change as the market changes, your intention to reach those goals can help you pick the right investment opportunities.
If your goal is saving up for retirement, buying a house, or paying for your child’s education in 10 years’ time, which is a long-term goal, then your portfolio has a lot to weather ups and downs. This is because it allows you to include investments that fluctuate over the short term.
However, if you’re saving up for a short-term goal like a summer or winter vacation in a few months down the line, then the investment decisions need to keep your money safe and secure over the short term.
Focusing on your goals during high market volatility helps you look at the long-term rather than short-term market losses. It allows you to step down from the intention of growing your investment year on year as the main goal, which wouldn’t likely work in an uncertain market. And instead, look at long-term, multi-year goals as the focus of your investment decisions. This strategy helps you avoid unnecessary panic buying or selling and keeps you consistent and focused on reaching your established goals, even if you face temporary losses.
The fear of missing out on hot new investment opportunities or attractive prices can be hard to overlook. But what you need to know is that this popularity doesn’t always mean they will give a great ROI, especially when the market is uncertain. In many cases, decisions influenced by FOMO can lead to “buy high, and sell low”, which results in losses and frustration.
In many instances, by the time you hear about hot assets in the market, the ideal time to invest in them has already passed. So instead of chasing trends, look for an investment portfolio that showcases potential growth in the long run.
Value investing is a great strategy to mitigate the risks of uncertain markets. It helps you scout out low-priced assets well-positioned for growth- which may take the form of dividend-paying stocks or those with ideal price-to-earnings ratios.
While these approaches may only help you reap benefits after a period of time, they can better position you for more stable, affordable growth with less risk of falling prey to trendy assets with little room to grow during a highly volatile market situation.
Diversification is key to mitigating risks in uncertain times. This means spreading your investment portfolios across a wide range of assets across global markets, including cash, fixed interest, and shares. That way, even if one area performs poorly, you will be able to compensate for it from the gains in other portfolios.
It should also be emphasised that investing mostly in traditional “safe” assets, like bonds, can sacrifice your long-term returns. In the investment market, playing it safe doesn’t help you build value, and being too aggressive can leave you overexposed. Spreading risks by diversification is the best way to get around this uncertainty when it’s challenging to predict what is next.
Another great way to mitigate risks is to seek professional help to manage, minimze and mitigate them in your decisions. They can assure you that markets are being closely monitored and appropriate steps will be taken to protect your wealth.
AIX Investment Group is a financial advisory company in the UAE with over 35 years of cumulative experience in the industry. Their proven track record allows them to offer investors secured returns while assuming all of the potential risks and volatile market conditions and helping to invest in the safest way possible.