Investing is a way to achieve your future financial goals. Whether you’re saving to send your children to college, purchase a future property, or fund the retirement of your dreams. To achieve your goals faster, the best approach is to stay invested over the long term. However, this can take a great deal of discipline and patience.
In times of market turbulence, many investors struggle to stay the course. As people watch their bottom-line drop, it’s tempting to sell and get out before things get worse. While it’s common knowledge that investments rise and fall, extreme market volatility can trigger fear. This can cause investors to overestimate potential losses and pull out. Unfortunately, if you sell too soon, you risk reduced returns.
If you don’t want to deal with the extreme ups and downs of a volatile market, and you’re ready for a smoother ride -- you have options!
A minimum volatility strategy can help you to stay the course.
What is minimum volatility investing?
A minimum volatility (min vol.) strategy invests in low-volatility stocks and avoids those with high volatility. The goal of this strategy is to participate in up markets while protecting against the down markets.
With a low volatility approach, you may have to forgo some upside when markets rise. However, you can rest easy knowing your capital is preserved in down markets. Given the unstable market environment of 2022, many investors are turning to minimum volatility strategies.
The benefits of minimum volatility investing
Negative returns can dramatically impact portfolio performance. Portfolios that experience significant losses face the increasingly difficult task to reach break-even. Trying to reduce downside risk can result in more favorable returns over time and can provide a smoother investment experience overall.