Tips for navigating through volatile markets

WHAT IS MARKET VOLATILITY?Volatility is a phenomenon wherein markets experience uncertainty resulting in bouts of upwards and downwards movements in index levels. Volatility is often described as the “rate and magnitude of changes in prices” and in finance parlance is often referred to as risk.
CHALLENGING MARKET CONDITIONS
While no investment strategy guarantees positive returns across all time frames, one can take some simple yet effective steps to ensure they are able to navigate through market volatility in a planned and process oriented manner:
STAY INVESTED:
Watching one’s portfolio returns fall is a heart stopping event for any investor. However, one of the best ways to safeguard your investments from being affected by market volatility would be to avoid taking any action. This means staying invested for the long-term and not paying attention to short term fluctuations.
ASSET ALLOCATION CRUCIAL:
 One should begin by defining one’s financial goals, risk appetite and time horizon; followed by careful asset allocation plan which becomes the basic building block to achieve the financial goals in the required time frame.
 DIVERSIFICATION IS KEY:
most essential component of asset allocation is to diversify one’s portfolio. Diversification is the process of spreading one’s investments across different asset classes. This ensures that one’s portfolio is not exposed to the risks of a single asset class and at the same is able to take advantage of the upside witnessed in different asset classes at different points in time. Invest through equity mutual funds. Exposure to stock markets through mutual funds is a convenient, affordable and prudent way for retail investors, since mutual funds offer you opportunity to avail the services of expert fund managers at marginal cost.
 SIP ROUTE:
Volatile markets result in fall in stock prices more due to market conditions rather than business fundamentals. Investing through SIPs helps one take advantage of market volatility since one is able to purchase more units of the scheme when markets fall and less units when markets rise thereby averaging the purchase cost. This leaves the investment with reasonable scope to generate sizeable returns when a rebound occurs.

Volatility is an inherent characteristic of stock markets. Instead of getting perturbed by the same, investors would do well to adopt the above measures and thereby craft their investment portfolio in a manner that it is armed with all the right ingredients to take advantage of market volatility and thereby deliver superior returns in the long term

Which is why the real winner is neither Stock Bulls nor Gold Bugs

Since the gold standard was completely abandoned in 1971, story goes something like this…

1972-1980
Gold Return: +1256%
S&P 500 Return: +97%
Narrative: Gold is the best investment in the world, and will continue to be so forever. There is hyperinflation in the U.S. and a secular stagnation in real growth.

1981-1999
Gold Return: -51%
S&P 500 Return: +1915%
Narrative: Stocks are the greatest investment the world has ever known, and will continue to be so. The internet age has forever changed investing returns and valuations; there is no upward limit to the growth in stocks in the coming years.

2000-2011
Gold Return: +443%
S&P 500 Return: +7%
Narrative: Stock investors have suffered through two 50% bear markets while Gold has more than quintupled. These are deflationary, depression-like conditions and only Gold can protect investors from what’s to come.

2012-2018
Gold Return: -22%
S&P 500 Return: +157%
Narrative: We’re in a Goldilocks period of low inflation and easy money. This is unbelievably bullish for stocks and very bad for Gold.

Overall, since 1972, the S&P 500 has had a higher return (10.6% vs. 7.4% for Gold) with lower annualized volatility (15.0% vs. 19.8% for Gold).
On this basis, Stock Market Bulls would say equities are the better long-term investment. Agreed, but how many equity investors would be willing to sit through an 11-year period (2000-11) with essentially no return and two 50+% drawdowns in between? Very few, just as there are very few Gold Bugs who would sit through a 19-year period (1980-1999) where their investment was cut in half.
Which is why the real winner is neither Stock Bulls nor Gold Bugs. It is the investor who can actually remain invested through tough times in a single asset class by maintaining a diversified portfolio of multiple assets: stocks, bonds, real estate, commodities, and alternative investments. Combining uncorrelated assets has been shown to reduce overall portfolio volatility and improve risk-adjusted returns.