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Four strategies to deal with stock market volatility

by , 04 June 2014

The stock market is volatile. Share prices bob up and down from highs to lows. It's this volatility that makes the stock market risky. But it's also this risk you undertake when you invest that has the potential to make you money. So what's the best way to deal with stock market volatility? Read on to find out…

Strategy #1: Time

One of the best ways to cope with volatility is time in the market.

Stock markets can stay at low levels for considerable periods of time, Phil Oakley in Money Week explains. So the longer you plan to stay in the markets, the better.

That’s why it’s so important to understand how long you plan to stay invested in the market.

Strategy #2: Reduce your holdings

One way to deal with volatility is to divest or reduce the number of volatile assets, like shares, you hold as you get closer to your savings target.

Strategy #3: Invest on a monthly basis

You could also look at investing on a monthly basis into unit trusts, for example.

This then will smooth out ups and downs over time. This is rand cost averaging. It means you buy more shares when the price is lower because you invest the same amount every month. This also means you buy less when the share price is higher.

Strategy #4: Concentrate on dividend paying shares

Invest in shares that pay you a dividend. This means you can buy more shares with your dividend income, which will compound your returns.

And once you get a dividend, the company can’t decide to take it away. This makes a dividend very different from a rise in a company’s share price. Dividends are a very important part of your return from holding shares.

Also, over the long-term, dividends tend to be much less volatile than share prices.

So there you have it, four strategies to deal with stock market volatility.

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