How to Protect your Investment Portfolio from Volatility

Market volatility is one of the biggest risks against an investment portfolio, especially those investments that are designed for the long-term or for one’s retirement. While is it has been said over and over again the stock market runs through a cycle of ups and downs, and that doing nothing is the best thing investors can do when stocks plummet, it’s a lot easier said than done.

For the casual investor investing for his/her own retirement, a significant drop in a stock’s value is impending doom. The primary concern of casual investors is whether their stock market funds and retirement assets can outlive them or the other way around, which is actually worse.

Protecting one’s retirement assets is necessary in order to enjoy a well-deserved retirement. But how exactly can it be done?

The first and foremost thing that you should do prior to investing your hard-earned money in stocks, funds and other retirement assets is to determine your tolerance against risk. How much or how little can you tolerate the idea of your assets going up and down in value in just a span of an hour or two?

Investing in the stock market can be very risky especially for day and penny traders. If you can’t handle the risk of investing in the stock market, why bother?

Doing something you don’t like doing is torture and can actually result in negative implications, not just for your wealth but also your heath. Moreover, you can still plan for your retirement through safe and secured insurance plans and through real assets like your home, a rental property or a vacation house.

On the other hand, for people who can tolerate investment risk, it is still essential to manage and control risk through ways like diversification and strategic withdrawals.

Diversification is the exact meaning of the old-aged investment axiom of never putting your eggs in one basket. Diversify your investments by putting portions of it across different industries to minimize the risk of losing your entire retirement savings into just one industry.

Casual investors can also make regular strategic withdrawals so that the amount invested in the stock market is reduced over time. The money withdrawn can be reinvested or can be used to purchase real properties to again minimize risk against market volatility and/or better generate regular cash flows. 

Some investment experts also boldly suggest to use the risk of market volatility to your advantage by buying additional stocks when the stock market is plummeting, citing the usual cycle-like pattern of the stock market.