3 Foolish ways I’m dealing with stock market volatility

As share prices yo-yo, this committed Fool explains his simple strategy for negotiating stock market volatility.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Text that reads Take a deep breath typed on retro typewriter

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The volatility in global stock markets over 2022 so far is enough to shake the conviction of even the most grounded of investors. Here are a few strategies I’ve been using to ride out the storm.

1. Don’t panic-sell

When the chips are down, it’s easy to see why moving into cash is so appealing. It draws a line under the situation and allows me to move on. But does it really?

Beyond holding an ’emergency fund’ to cover, say, a sudden unexpected bill or brief period of unemployment, cash is just about the worst asset I could have right now. Low interest rates and galloping inflation means its value is gradually (or not so gradually!) being eroded. So in addition to crystallising any losses, I’d essentially be jumping out of the frying pan into the fire.

Selling up also implies that I also know when will be the right time to buy stocks again. The sheer volatility we saw on markets last week, where share prices actually rose as the Russian invasion of Ukraine progressed, tells me I don’t.

As a committed Fool, it goes without saying that panic-selling everything I own right now is not something I’m contemplating. 

2. Buy quality

Warren Buffett tells us to “be greedy when others are fearful“. I’d say right now offers me a great opportunity to put this advice into practice.

Now, it doesn’t make sense to buy any old stock on the market and expect it to recover in style. I would, for example, avoid any company lacking financial stability (such as cinema chain Cineworld). I would also steer clear of any business that lacks an identifiable advantage over competitors (such as white goods seller AO World, in my opinion). Instead, I’d be out to snap up proven ‘winners’ in their respective sectors. From the FTSE 100, for example, I remain convinced that Halma is a great growth buy

Aside from looking for quality businesses, there are also ways of making the buying process easier from a psychological point of view. One is buying in tranches, otherwise known as pound-cost averaging. Such a strategy helps to avoid trying to time the market exactly (which I know I can’t do, at least consistently). It also ensures at least some of my money starts working for me. 

A third element of my buying strategy is to make sure that anything I snap up is held within a Stocks and Shares ISA. This means any profits I make (and dividends I receive) are free of tax. 

3. Switch off

Assuming I’ve not sold anything in haste and bought things I’ve had on my watchlist, there’s one final solution that’s unsurpassed in helping me deal with stock market volatility. Simply, just switch off. That’s right — close off my portfolio, turn off the laptop, stop watching the news and go and do something more productive.

I have the confidence to do this because evidence shows that equities outperform all other asset classes. This includes cash (naturally), bonds, real estate and gold. The only caveat here is that this requires being invested for the long term.

For someone content to grow his wealth slowly but surely, that suits me. As distressing as current events are, I also know that “this too shall pass“. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Halma. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

I asked ChatGPT to name the FTSE 250 share it would buy in a heartbeat – and it went mad!

Harvey Jones wondered whether artificial intelligence was up to the job of finding him a brilliant FTSE 250 share to…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Is the BP share price primed for lift off?

As an activist investor takes a substantial holding in BP, Andrew Mackie assesses what it will take to energise the…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

No savings? I’m using the 5-step Warren Buffett method as I aim to get rich

Christopher Ruane outlines a handful of investment techniques he uses, inspired by the incredible stock market record of Warren Buffett.

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With a spare £3,000, here’s how a new investor could start buying shares

Our writer explains how someone with a few thousand pounds and no prior stock market experience could start buying shares…

Read more »

UK money in a Jar on a background
Investing Articles

£10,000 invested in Greggs shares in 2020 has made this much passive income…

Greggs shares have struggled lately due to economic weakness and rising costs. Are they still worth considering for an ISA…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Don’t look now, but the FTSE 100’s beating the S&P 500 in 2025…

So far this year, UK stocks have been doing better than their US counterparts. So is the FTSE 100 the…

Read more »

Investing Articles

How much would someone need in UK shares to earn £5,000 in passive income each month?

Thousands of Stocks and Shares ISA investors have built up more than a million pounds and can sit back and…

Read more »

Investing Articles

£10,000 invested in Tesla stock 1 month ago is now worth…

Tesla stock is remarkably volatile for a mega-cap company. While this presents some opportunities for investors, it’s also inherently risky.

Read more »