How To Invest In A Turbulent Stock Market

Knowing how to invest in stock markets requires special skills for profits. There are many risks involved with stock market investments and, while these risks cannot be eliminated altogether, they can certainly be mitigated through appropriate measures. Navigating the stock market in turbulent times requires a different approach and tactics. There are some key factors that you should be aware of before moving your investments into turbulent stock markets:

Remind Yourself That Markets Always Operate in Cycles

Stock markets operate in a cyclical fashion. Although there are factors such as the economic and political climates that affect market sentiment, depressed markets tend to bounce back sooner or later. To what degree they will recover in a particular cycle remains uncertain. Market data shows that wealth is created on a greater scale by investing in turbulent markets. However, you need to be able to have a conviction that the markets will rebound, and be ready to hold a slightly longer term perspective on your investments to ensure a healthy return.

Continue Investing in Blue Chip Stocks

Most blue chip stocks that are typically unobtainable due to high price, may be within reach in a turbulent or bad market economy. Traditional blue chip companies will be able to utilize downturns by streamlining their operations and profitability to come out bigger and stronger in the upturn. You cannot afford to wait for the market to reach its absolute low because you can never know when that is going to happen. Moreover you can also never identify a clear sign of when the market will rebound. The only way to counter it is to continue investing in the market, because when it rebounds, it will not only cover all your losses, but also allow you to reap better returns.

Focus on Companies With Strong Fundamentals

When the markets are down, troubled companies may choose to borrow cash from the bank to cover their cash flow issues. This financing may be made available to them at relatively low rates during downturns. However, as markets improve, interest rates are likely to go up, and these companies may not be able to service their debt. Therefore, look at investing in companies with a historically strong debt to equity ratio. Not only will they be able to fare better during turbulent times, but they will be also be able to make the most of the improved market conditions as the cycle rebounds.

Re-assess existing holdings

If you already have a stock market portfolio and have held on to it during the downturn, then you want to consider taking a capital loss for tax purposes and reinvest your unlocked cash in scripts that offer better value for money and better potential to provide higher returns as markets improve. You should try to replace all the weaker companies with the stronger ones, and also diversify your portfolio with the bargain values offered in prime company shares.

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