The stock market has been incredibly volatile recently. Last week, America’s S&P 500 index registered its worst four-day streak since 2008.
Now, as someone who’s been investing since the early 2000s, I’ve seen this kind of market activity before. With that in mind, here are four tips to get through the current turbulence.
Stay calm and stick to your strategy
When markets are tanking and there’s fear in the air, it’s crucial to stay calm and stick to your investment strategy. If you panic, you could end up making an irrational move that you’ll come to regret down the line.
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Remember that market volatility is a normal part of investing. While stocks tend to provide great returns in the long term, they never go up in a straight line.
Think ahead
Speaking of the long term, now’s a good time to focus on it. Instead of thinking about what’s going to happen over the next month, think about where stock markets could go over the next decade (they almost always go up over 10-year periods) and how you could potentially set yourself up financially by making the right moves today.
It’s worth pointing out here that if you have a long-term horizon, you’re much better off buying shares at lower prices instead of higher ones. And right now, share prices are much lower than they were a few months ago.
Focus on big themes
As well as taking a long-term view, it could be smart to take a thematic approach to investing. Think about the industries that are poised to get much bigger in the years ahead and consider allocating some capital to them now while prices are low.
One industry that I believe is set for massive growth in the years ahead is cybersecurity. With cyberthreats continually becoming more sophisticated, I reckon spending on this area of technology is going to boom over the next decade.
Now, there are many stocks in this industry that could be worth considering today including the likes of CrowdStrike, Palo Alto Networks, and Fortinet. If someone is looking for broad exposure to the industry however, they may want to consider the Legal & General Cyber Security UCITS ETF (LSE: ISPY).
This provides exposure to a range of leading businesses in the cybersecurity industry. Overall, there are around 35 stocks in the ETF (including the three I mentioned above).
This isn’t a product I’d put my life savings into. Cybersecurity is a dynamic industry (threats are always evolving) meaning companies’ growth can fluctuate. Meanwhile, a lot of companies in this industry have high valuations. So, their share prices can be more volatile than the broader market.
Taking a long-term view, however, I believe this ETF has a lot of potential.
Manage risk
Finally, my last tip is – think about risk and don’t try to be a hero.
Consider drip-feeding capital into the market bit by bit (buying mainly on days when the market is down). This will ensure that if stocks fall further, you can still capitalise.
Remain diversified. ETFs like the one above can be a good way to spread out your capital.
And focus on high-quality companies that are going to be around in the future. Now isn’t the time to put your life savings into a speculative penny stock that could go bankrupt if economic conditions deteriorate.
