5 ways to deal with extreme market volatility!

This market expert explains why shares are attractive investments in spite of volatility. And here are four top FTSE 100 shares I’d buy after recent falls.

Business man on stock market crash financial trade indicator background.

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Stock market volatility has ramped up several notches recently. And conditions could remain bumpy for weeks or even months given the range of dangers facing the global economy.

Rocketing inflation across the world threatens to derail consumer spending and drive up business costs. Signs of a drawn-out conflict in Ukraine and resurgent Covid-19 cases in China are adding to these pressures and create their own specific problems too.

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Taking your medicine to make BIG returns

Clarity is something investors crave when times get tough. But the truth is that stock markets can be a great way for share investors like me, despite times of extreme volatility.

As Dan Lane, senior analyst at trading platform Freetrade, says: “Volatility is the price we pay for the hopeful long-term outperformance of equities over cash.”

Lane notes that continuing to invest during good times and bad is essential for making a consistent return. He says that “you’ll catch the market highs and lows so your average price will smooth out over the long term.”

Lane has put together a list of five principles he uses to cope with stock market volatility:

#1: Invest with a clear head

One of the things we aren’t very good at is making decisions under pressure,” the Freetrade analyst says. Unfortunately we feel compelled to act when markets are choppy, bringing unwanted emotions like fear, excitement and anxiety into the investing process.

Lane reminds investors that market volatility is normal and so acting rashly is a bad idea. He says that we should “take a step back and remember this is what we all signed up for.”

#2: Swallow the pain

Lane says that share pickers have to simply that accept market volatility will happen and that some near-term pain will come at some point.

He notes that the alternative to share investing is to hold one’s money in cash. This leaves one’s wealth in danger of eroding due to soaring inflation (which currently sits around 7%).

#3: Stay level headed

A good investor will try to stay measured no matter what is happening around the world, or in their portfolio,” Lane says. This means that we should avoid punching the air in glee when markets rise or “[toppling] off that pedestal” when things get tough.

Do your research and keep the long-term journey front of mind,” he comments.

#4: Have a diversified portfolio

Holding a range of stocks with different prospects and external influences makes sense at the best of times,” he says. And he adds that recent market volatility also shows why diversifying between uncorrelated asset types is useful for investors.

The Freetrade analyst comments that buying assets that act differently to each other is a useful tool. That’s whether it’s for fine-tuning risk or setting up a portfolio to absorb stock market shocks.

#5: Prepare to go bargain shopping

Lane notes that “sometimes even the good companies are taken down by the crowd” when market volatility hits. This is why it pays to have a shopping list already prepared so an investor can pick up some of these stocks at knock-down prices.

A lot of price-conscious professional investors have their wishlist full so they can assess the damage in a downturn quickly and decide if it’s time to invest or walk away,” he says.

Here’s what I’m doing now

I for one certainly plan to continue buying UK shares for my own portfolio following this recent market volatility. And I have a ready-made list of stocks I’m keeping an eye on.

Nobody can predict when the current bouts of market volatility will pass. And as Lane says, continuing to invest during good times and bad is the key to making long-term returns.

Besides, recent choppiness means that a lot of quality stocks are trading at knock-down prices right now. If I wait I could miss an opportunity to snap them up before they rebound in price.

4 FTSE 100 shares I’d dip-buy today

Royal Mail is one top stock I’m considering snapping up. Britain’s oldest courier is highly sensitive to broader economic conditions and revenues could sink if letter and parcel volumes decline sharply. But I’m still a big fan as I think the FTSE 100 firm’s critical role in e-commerce provides long-term excellent growth opportunities.

Recent market volatility now leaves Royal Mail trading on a P/E ratio of 6.2 times. Its dividend yield also sits at a mighty 7% at current prices of 325p.

I’d buy Smith & Nephew shares too following their fall to three-year lows. This is despite the threat that the Covid-19 resurgence in China poses to revenues. Most of its artificial limbs and joints are used in elective operations. These non-essential procedures were cancelled en masse at the height of the pandemic.

I think Smith & Nephew has a very bright future. The long-term outlook is particularly encouraging in its developing markets as spending on healthcare balloons. I also like the FTSE 100 business because of its growing position in surgical robotics.

I’d invest in Antofagasta as well following heavy share price falls. A sinking global economy would hit Chinese exports hard and as a consequence, demand for Antofagasta’s copper. However, I expect the mining stock’s profits to soar over the next decade as electric vehicle (EVs) sales take off.

Antofagasta’s fall back to £13.40 per share has pushed its dividend to an impressive 5.5%.

I’m also considering buying WPP after recent market volatility. That’s even though the advertising market could grind to a halt as consumer spending shrinks and companies conserve cash.

I like WPP because of its commitment to earnings-boosting M&A and its improved focus on the fast-growing digital sector. I think this FTSE 100 share could deliver excellent returns over the next decade.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Smith & Nephew. 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.

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