Strategies for safeguarding your investments during periods of market uncertainty
When you hear the words “market volatility” you might picture people shouting and panicking on the trading floor or a downhill line graph.
But the truth is – the market is always volatile.
On a day-to-day (or even hour-by-hour) basis, there are small fluctuations and it’s all perfectly normal.
The challenge for investors is to find ways to protect their wealth from market volatility, especially during highly turbulent times and financial crashes.
Read on to find out how to insulate your wealth from market volatility in a sensible and strategic way.
WHAT IS MARKET VOLATILITY AND WHAT DRIVES IS?
Market volatility refers to prices moving up and down. Small shifts are normal, but when they get bigger or more frequent people start to worry.
At the time of writing, there are a number of factors adding to current market volatility.
- Unemployment is beginning to rise, which triggers something called the Sahm Rule – an early warning for potential recessions. The rule says that if the three-month average unemployment rate rises by half a percent or more compared to its 12-month low, it could mean we’re heading towards a recession.
- Geopolitical tension is growing as trade disputes escalate between the US and China and conflict rumbles on in Europe. This affects global supply chains and investor confidence.
- Tech stocks are struggling. Some analysts say the AI bubble might be bursting.
- Inflation and interest rates continue to add to the economic uncertainty.
In times like this, it pays to balance and diversify your portfolio. In fact, it pays to do it during good times too, as it prepares you for the worst.
BUILD A DIVERSIFIED AND BALANCED PORTFOLIO
During times of market turbulence, some investors are tempted to sell off stock and wait for calmer waters. A better approach is to diversify and balance your investments, which means spreading your money across different types of investments called asset classes.
- Stocks (ownership in companies)
- Bonds (basically loans to companies or governments)
- Real estate
- Commodities like gold or oil
Even within those asset classes, it makes sense to spread your money across industries and geographical regions. That way, if one area takes a hit, the others soften the blow.
Some investors also look towards safe-haven assets like gold or short-term government bonds. These tend to hold their value or increase at times when riskier investments like equities are falling. Adding a small portion of these to your portfolio acts as a stabiliser during economic storms.
One of the most accessible ways to diversify your portfolio is to use mutual funds or ETFs (exchange-traded funds). These offer broad exposure to different asset classes, sectors, and regions without needing to pick individual stocks or properties yourself. They’re a low-cost and efficient way to build a well-rounded portfolio that’s resilient to shocks.
INCREASED YOUR CASH RESERVES IF POSSIBLE
During times of extreme market volatility, it might make sense to increase your cash reserves, putting you in a better position to buy if the market takes a downturn.
Warren Buffet recently sold a large portion of Berkshire Hathaway’s Apple stock. Rather than rushing to reinvest the proceeds, Buffett reportedly increased the company’s cash reserves, so he can act fast when better-value opportunities emerge. It’s a classic example of “be fearful when others are greedy, and greedy when others are fearful.”
REBALANCE AND REALIGN WITH CHANGES
Over time, the value of different parts of your portfolio changes, with some investments growing faster than others, which can throw off your original plan. That’s why it makes sense to look and see if things have gotten out of proportion, then fix it before problems manifest.
Let’s say you set up a portfolio a few years ago with 60% in stocks and 40% in bonds, but recently stocks have gone on a bit of a run and the mix is now 70/30. You’re now carrying more risk, so it pays to rebalance by selling some stock and buying more bonds.
Selling stock that’s performing well might feel a bit backwards, but in reality it’s a smart move. You’re locking in gains from overperformers and reinvesting into areas that may be undervalued or more stable. It stops you from taking on more risk than you realise.
Look to rebalance your portfolio at least once a year, maybe more if there’s a major event like a market correction or your stock portfolio booms after a 20% tech rally. Life events are another good reason to rebalance. Getting married, changing careers, buying a home, and having a baby all affect your financial goals and how much risk you can or want to take.
For example, if you’re 25 and single, going 100% all-in on growth stocks might work. But if you’re 40 with two kids and thinking about buying a house or saving for college, it’s probably best to shift to a more balanced, lower-risk approach.
FOCUS ON FUNDEMENTALS WHEN INVESTING
Focusing on the fundamentals means looking at the core strength of a company before investing in it. Forget hype and headlines, and focus on the financial health and long-term potential instead.
Here are a few core things to look for before investing in a company.
- Balance sheet strength: Does the company have more assets than debt? Are they financially stable enough to ride out a rough patch?
- Cash flow: Is money consistently flowing in? This tells you whether the business can stay afloat, fund its operations, pay its employees, and invest in growth.
- Low debt levels: In uncertain markets, companies with a mountain of debt are riskier. If earnings drop and debt payments stay high, they can get squeezed fast.
You can find much of this info in analyst reports or ETF fund fact sheets. You can also look at long-term stock price graphs, as companies that have weathered multiple market cycles are often strong for a reason.
DEVELOP A RISK STRATEGY THAT FITS YOUR TOLERANCE
A lot of people say things like “I’m not good with risk” or “I panicked and sold during the last downturn.” How can you actually figure out what kind of risk you can handle?
The first thing to realise is tolerating risk doesn’t isn’t the same as being fearless. It’s about knowing what level of uncertainty you can accept without losing sleep or doing something you’ll regret.
If you’ve already dabbled in investments, the easiest way to figure it out is to think back to the last time the market dipped. Did you shrug and say “eh, it’ll come back”? Or did you see the red arrows and immediately consider selling everything? If volatility makes you anxious, then don’t go for an aggressive portfolio and aim for balance instead.
Also consider capacity, especially if you’re retiring soon or will need money in the short term, as you can’t afford big swings in that case. In this case, keeping a cash reserve is a good strategy, as it gives you breathing room during downturns so you’re not forced to sell your investments at a loss.
Applying certain techniques and tools can help you manage risk. One of the most common ones is a stop-loss order. It’s basically an automatic sell if a stock drops to a certain price, helping you cut losses before they get too deep. You’ll probably have to adjust it as conditions change though, as if you set a stop-loss during a calm market and then a storm hits, your strategy might be too tight and kick in unnecessarily.
Remember – volatility is only scary if you’re unprepared… so make sure you’re prepared!
INVEST WITH DISPLINE, NOT EMOTION
If the market suddenly drops it can trigger the financial version of “fight or flight.” and fear-based survival instincts take over. But when you act on those emotions, it usually leads to bad decisions like panic selling at the worst time.
A good tip here is to monitor economic trends and market indicators, but avoid regular doomscrolling or compulsively checking market graphs every hour. It’s good to be proactive, but not obsessive, as you’ll be more prone to rushed anxiety-driven decisions.
One technique that’s good for long-term results is to invest a fixed amount on a regular schedule, no matter what the market’s doing. It takes emotion out of the equation. When prices are high, you buy fewer shares. When they’re low, you get more.
If the market does tumble, give yourself 24 or 48 hours before you act on a big emotional impulse. During that time, go back to your goals and ask yourself: “Has my long-term plan changed? Or am I just reacting to short-term fear?”
For people who want an even stronger framework, there’s something called an Investment Policy Statement, or IPS. It’s a simple written document that spells out your goals, risk tolerance, and strategy. It’s like a personal investing rulebook to fall back on when things get volatile, stopping you from making decisions based on headlines or emotions.
MAKE STRATEGIC USE OF PROFESSIONAL ADVICE
A good financial advisor helps you make smarter, calmer, long-term decisions with your money, especially when markets get turbulent.
Only seek advice from professionals who are authorised by the Financial Conduct Authority (FCA), as they’re required to act honestly, fairly, and in the best interests of their clients.
Finding the right financial advisor helps you:
- Rebalance your portfolio when things shift
- Navigate tax strategies that save you money
- Plan for big milestones like buying a house, funding education, or retiring
- Manage your portfolio risk
- Explore alternative investments, like real estate or private equity, if that fits your profile
If you’re looking for expert assistance in protecting your wealth from market volatility, then talk to us today.
