Firstly lets discuss what we mean by market volatility. This is a financial term used to describe the daily movements in the share market or an underlying security (share) price. The greater the movement the greater the volatility. Volatile in markets are characterized by wide price fluctuations and/or heavy trading.
When movement in the share market is up one day, noticeably down for the next week, then appears to be traveling upward again, only to spiral downward again, that's what investment advisers call share market volatility. At times of high volatility investors may panic and request their portfolios are changed.
Volatility is not all bad, opportunities do arise for investors during periods of market volatility. Markets tend to move up and down in the short term, and volatility should not be the deciding factor as to whether or not investors should immediately exit. With a strong understanding of volatility and its causes, investors potentially can take advantage of investment opportunities resulting from volatile markets.
So what should investors do at times of high volatility:
Stay the Course
Its virtually impossible to time when the market has topped and when to get out and when the market has bottomed and when to get back in. It may sound lazy but often the best course is to stay on track and stay invested. Have your goals, objectives and time horizon changed? This is a great time to have an investment plan and strategy in place and to stay the course. Have faith in the markets.
Invest More at the Discounted Prices
Why is it that if we see a sale on in the shops 25% off we will think that's a bargain and often make spontaneous purchases but if the share markets have dropped 10% we think that's risky I will wait until the markets go up?
Lessons from a Nobel laureate in Behavioural Finance ....