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Recent high levels of market volatility have sowed doubt in investors and traders. It is understandable, but it’s not rational or logical if you’re trying build wealth. Don’t shy away from volatile markets – embrace them!
Sounds crazy, doesn’t it? If you’re risk averse, don’t you want to avoid high risk situations when your capital is at work?
Well, yes. But there is a difference between practicing good risk management and taking advantage of great buying opportunities. Trading in volatile markets is not as risky as it sounds.
Higher volatility only means the price range that stocks trade in is wider than usual. It is not all bearish or bullish. The range expands in both directions.
So how does one embrace volatile markets?
With the knowledge that short term pops in volatility (as measured on the VIX) are temporary. If your timeline is longer then it seems than a day or week, it is OK to buy when others are selling.
Look back at history, and you’ll see this is exactly the right move! Recent surges in volatility felt awful at the time but ended up being terrific buying opportunities. (Just don’t try to time these moves perfectly – that is a fool’s game.) Will it be hard to hit the buy button? Yes. Will you have a pit in your stomach? Maybe.
Remember when markets crashed in March 2020 in response to the COVID-19 pandemic? Or during the Global Financial Crisis in 2008/09? These are extreme examples of amazing opportunities to buy and build wealth during panic selling. But even smaller spikes in volatility are just as important to grab a hold of.
Trust me, we will have more spikes in the future, so keep your options open when volatility is rising.
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