BEST PRACTICES FOR INVESTORS TO USE IN VOLATILE MARKETS
By implementing some basic best practices, investors may be able to lose less sleep and enjoy a rewarding experience across the full market cycle.
Volatility is a fact of life in the stock market. If the thought of too much volatility is overwhelming, you simply must take actions to reduce risk—and that is where the trouble usually begins. Investors may go to such extremes to avoid risk that they miss out on some golden opportunities. “Make sure you have real assets that produce real yield, not just financial assets,” says Yuen Yung, CEO of Casoro Capital, a private equity and single-family office focused on creating real estate partnership opportunities for high net worth individuals, family offices, and institutions.
Learn to Manage Risk
However, if an investor is determined to reduce the amount of risk to single-digit percentages, Yung suggests get out of the market and start over. “Take the chips off the table while it’s hot and use them to diversify into non-market correlated assets. A lot of people lost a great deal in 07 and 08 by leaving everything in a market that was clearly overheated. It’s important to take your gains off the table and move them to more recession resistant assets before it is too late.”
Managing risk is the key to surviving any market, including volatile ones. “There are four ways to manage risk. The first is to focus on income,” says Scott Picken, CEO of Wealth Migrate, a global online investment platform offering investors direct access to commercial real estate investment opportunities in premier markets around the world. “Secondly you have to focus on the quality of the partner. Market cycles are a given and so it is all about the track record of the partners and how they have performed through the previous downturns.”
“Thirdly you have to ensure you partners are aligned long term. Most brokers or financial planners sell you something and earn a commission. They are not aligned with your long-term return. Finally, my uncle taught me when I was a teenager that you must always work out the worst-case scenario and if you can manage that, then everything else is upside.”
Diversify to Profit
Investing money outside of the standard market avenues, such as in real estate of various kinds, is another way to generate a healthy, risk-tolerant portfolio. “Diversification, especially with an allocation to non-market correlated real assets with real yield in addition to the standard stock and bond diversification is one way to counter any financial storms,” states Yung. “Real estate is one form that continues to be a great place to diversify and not only get some real income but also long-term growth. The new tax laws add additional incentives for a vast subset of investors.”