How to deal with the risk of investing in stocks during periods of volatility in the financial markets

6 Strategies to deal with the volatility of stock markets and reduce the risk of investment during periods of turmoil:

"The Telegraph newspaper revealed six strategies to reduce the risk of investment in stocks during periods of turbulence and market volatility as investors worried to sell their shares to avoid further losses. The report noted that during times of economic turmoil and market changes, investors usually move from keeping the growth-chasing stocks that are more risky to the old, reliable companies that pay dividends.

Stock markets have been under strong pressure on several occasions recently amid concerns over global economic growth, the US-China trade dispute and negotiations between the two sides after they reached a truce. In such cases, anxious investors sell their stocks to avoid losses if markets continue to fall, but selling at a low price means a loss if the stock recovers again.

6 Strategies to reduce the risk of investment in stocks during financial crises and market fluctuations

1. Shift from growth to value

During periods of economic turbulence, investors usually move from keeping the growth-chasing and risk-taking stocks of companies that are more risky (such as non-profit technology companies) to the old, reliable companies paying dividends (such as insurance companies and banks, Shares).

 

Another safe haven is value stocks, which are not favored by investors whose stock prices do not fully reflect the value of their assets and form a defensive plan for many fund managers.

2. Find a large size

Small businesses are more vulnerable than others, and their shares are often sold in times of crisis faster than their larger, more established peers, so anxious investors are considering avoiding them during the turmoil.

Tom Stevenson, investment manager at Fidelity Personal Investment, said switching to larger companies would reduce risk, but there could be exceptions to the rule.

3. Focus on dividends

In weak economic conditions, companies that pay good returns are more attractive than those that can not be matched, and in some markets there are investors who focus only on this type of equity.

In Britain, income funds that aim to provide an annual return to investors focus on this sector of companies regardless of economic conditions or defense situations.

 

4. Diversification

Investors are often asked to apply the famous wisdom of "do not put all the eggs in one basket", yet some trustworthy funds may focus their investments in specific sectors or regions.

For example, Britain's Vandemouth Equity Fund invests 65% of its funds in the United States, while Scotsch Mortage of Scotland invests 28% of its assets in the technology sector. This strategy can make strong gains as investment managers prefer stock selection, but the opposite is true. If their choices are not successful, the losses could be heavy.

5. Consider non-equity assets

Some funds look beyond equities to achieve strong returns, a strategy that already helps them at times, and may include some derivatives. Some UK funds are planning to pay 7% of the annual income they give to their customers through equity and derivatives, and believes that in this way they could secure more profit if markets

6. Comparison of active and inactive investment (passive)

Negative equity funds that follow equity indices closely may lose as sharply as they can. Unlike active asset managers, where one can choose or avoid stocks to mitigate the effects of downturns, these funds run by computers and algorithms do not enjoy the luxury of choice, and during market volatility it is only going downhill.

In passive investment funds, there is no place to hide, experts say, and some large companies can dominate the performance of a particular index, which eventually leads to investment seemingly not diversified.