If you pay any attention to the financial markets, you’ve probably noticed that things are changing. Tech stocks are no longer the safe bet they have been for years, and stocks that had been underperforming are starting to take over.
So how do you keep from losing your head when the markets are rotating, and your portfolio requires adjustments? These tips will help you out.
Educate yourself about the rotation
Before you do anything to your investment portfolio, you have to understand what’s happening in the markets. Taking some time to read up on the market rotation will help you get a handle on what’s happening. The more you understand the situation, the more prepared you will be to make changes to your portfolio.
The market is currently in the middle of a rotation from growth stocks and into value stocks. Investors are also rotating out of stocks that benefited from the COVID-related lockdowns and into those that will benefit from the reopening of the economy.
Value stocks are those with prices that are lower than their company’s intrinsic worth. The average investor who doesn’t know much about stocks may want to ask a financial advisor to help guide their picks. If you’re using an online trading platform, you’ll want to read as much financial media about value stocks that you can.
Why value stocks are taking over
Some examples of value stocks include JPMorgan Chase, ExxonMobil and Citigroup. Banks are seen as an excellent value play right now because interest rates are rising, which means higher earnings for them.
The MSCI World Value Index is up more than the MSCI Growth Index, demonstrating how well value stocks have been outperforming growth so far this year. The key is the economic recovery because, during past recoveries, value stocks have also outperformed, although so far, the moves are still far below the rallies seen in past recoveries.
That suggests the rotation into value names still has a long way to run. Another reason value stocks are climbing is because bond yields and inflation expectations are rising.
Avoid knee-jerk reactions during this volatile time
It’s also essential to avoid making emotional decisions with your portfolio. It can be tempting to let a news headline influence the moves you make, especially if you’re using an online platform and making your own trades. It’s far too easy to jump ship and sell a stock you should be holding onto despite a troubling headline.
The reality is that stock prices will rise and fall, and during a period of rotation like the current time, volatility is a real possibility. One piece of bad news like a disappointing earnings report does not necessarily mean you should sell a stock. Many well-known investors use selloffs triggered by bad news as opportunities to buy more shares at a discount.
Because amateur investors often struggle with their emotions when making investment decisions, they frequently fall victim to buying high and selling low, the opposite of what you should be doing. Two strategies that help you buy low and sell high despite volatile markets are dollar-cost averaging and portfolio diversification.
Dollar-cost averaging involves setting up a certain amount of money to be injected into your portfolio on a regular basis, no matter what’s happening in the markets. This practice reduces the impact of volatility on your portfolio. Diversification helps by ensuring that you don’t put all of your money into just a handful of investments.
How to manage stress during volatile markets
Managing stress when volatility is rocking the market can seem complicated, but it is doable. Emotions influence investment decision making, so it is essential to get things under control. Signs of stress include insomnia, problems remembering things, decreased energy, increased conflict, trouble concentrating, overeating or undereating, and excessive drug and alcohol use.
To manage your stress levels, you’ll need to eat right and get enough sleep. If you need to make changes to your diet, do them gradually instead of making one large leap quickly because it can be stressful if you decide to make significant changes all at once. You should also work on keeping your blood sugar levels even, so that means don’t cut carbohydrates and don’t eat simple carbs. About every three hours, eat a complex carb snack or meal with protein and healthy fat to keep your blood sugar steady.
You might think you should think positively about the markets, but that usually isn’t possible during times of extreme volatility. However, a better option is to focus intently on your beliefs, goals and information that will serve you. Remember why you’re doing what you’re doing, and look at the fundamentals of the companies you invest in to remind yourself that you didn’t pick losers even though they might sell off for one or two days.
Before making any big moves with your portfolio, take some deep breaths and think about them before taking action. Volatility is a certainty, but you don’t have to let the markets get you down and take your portfolio with them.