Key points
- Emotions can be detrimental during market fluctuations – reacting impulsively by selling in a panic, overtrading, or seeking overly cautious strategies often results in unfavorable outcomes. It’s crucial to maintain focus on your long-term goals and avoid rash decisions.
- Turn volatility into an opportunity – Create a watchlist of well-regarded ETFs, consistently apply dollar-cost averaging, and adjust your portfolio as necessary. These straightforward and repeatable strategies can help transform market downturns into opportunities.
- Stay up-to-date and leverage your resources – With tools like screeners, market insights, and trade alerts, Saxo provides all the essentials to help you manage market uncertainty with confidence.
When markets become unstable, instincts can often drive decision-making, and not always in the best direction. Market volatility tends to provoke gut reactions that may do more harm than good to investment portfolios. Whether it’s the fear of losing money, frustration over diminishing profits, or the urge to take action, many investors fall into predictable traps.
The silver lining? These missteps are preventable. Being aware of common pitfalls can significantly reduce the risk of making costly mistakes.
1. Panic selling: Turning volatility into a loss
One frequent mistake during a market downturn is selling at the lowest point. While it may seem like a way to limit losses, it often results in realizing those losses.
A more effective strategy: Rather than reacting impulsively, ask yourself: Has the long-term investment thesis changed? If not, it could be a good time to hold on or even make selective purchases. Historically, markets have favored those who exercise patience.
2. Market timing: The mirage of the perfect exit and entry
Attempting to avoid volatility by perfectly timing your entries and exits is risky. Missing even a few of the strongest market rebound days can significantly affect long-term gains.
A more effective strategy: Consistently investing through dollar-cost averaging during turbulent times can minimize regret and create more stable entry points. Staying invested—rather than trying to time the market—tends to yield better results.
3. Chasing “safe” assets: Flight to (too much) safety
During risk-off periods, many investors move into cash or low-yielding assets. While reducing risk is important, being overly conservative may cause you to miss out on the next market rebound.
A more effective approach: Use diversification as a buffer. Allocating some assets to defensive sectors (such as healthcare or utilities) or dividend-paying stocks can help minimize volatility while keeping you engaged in the market.
4. Neglecting the plan: Strategy goes out the window
Market volatility can cause even experienced investors to question their strategy. However, altering your plan during turbulent times is like trying to redesign a ship while navigating through a storm.
A more effective approach: If your investment strategy aligns with your goals and risk tolerance, stay committed—particularly when the market feels unstable. Adjustments should be driven by regular rebalancing, not emotional impulses.
5. Overtrading: When activity masquerades as control
Market fluctuations may lure investors into making frequent trades in search of short-term gains or to sidestep losses. However, constant trading can lead to higher fees, tax implications, and unnecessary stress.
A more effective strategy: Often, the best decision is to do nothing. Prioritize high-conviction investments and long-term positioning instead of reacting to every market headline or price movement.
What can investors do right now?
We put together a comprehensive Investor FAQ addressing last month’s market downturn, covering the most frequently asked questions: Should I sell? Are we at the bottom yet? What are the indicators of a potential recovery? How can I determine when it’s time to invest again?
Here’s how to stay proactive—and calm—in a volatile market:
1. Build a watchlist of high-quality ETFs
Market volatility can offer excellent opportunities to invest in diversified assets. Here’s how you can build a watchlist on SaxoTraderGo. You can also watch this video for guidance on creating dynamic watchlists using the screener on SaxoTraderGo
Some options to consider:
- iShares Core S&P 500 UCITS ETF – Direct exposure to U.S. large caps.
- Invesco Nasdaq-100 UCITS ETF – For those bullish on tech and growth stocks.
- iShares Core MSCI World UCITS ETF – Global equity exposure.
- Vanguard FTSE All-World UCITS ETF – Diversified global markets, including emerging markets.
- Amundi MSCI USA Minimum Volatility Factor UCITS ETF – For those seeking lower-risk U.S. exposure.
- SPDR S&P Euro Dividend Aristocrats UCITS ETF – For income-focused investors in Europe.
- iShares China Large Cap UCITS ETF – For contrarian exposure to Chinese blue chips, many of which are still trading at discounts.
- KraneShares CSI China Internet UCITS ETF – A play on China tech giants like Alibaba, Tencent, and Meituan.
2. Practice Dollar-cost averaging
Don’t hold out for the ideal market low. Invest fixed amounts consistently over time. This strategy helps eliminate emotional decisions and averages your entry price, which is especially beneficial during periods of market fluctuations.
3. Rebalance when necessary
Create rebalancing alerts to notify you when your allocations deviate by more than a set percentage—such as ±5%. This allows you to reduce overrepresented positions and increase underrepresented ones in a systematic way.
4. Stay informed with in-platform research
Utilize screeners, market insights, and trade signal tools to assess new opportunities without reacting to every headline.
5. Write down your investing plan
Even a brief reminder can help ground you: ‘I’m investing with a 10-year horizon, focusing on long-term growth. I’m prepared for short-term fluctuations and plan to rebalance annually.’ This simple strategy can be surprisingly effective in easing anxiety.
Reminder: What happened after the COVID crash?
A bit of perspective can be very helpful. Let’s take a look back at March 2020:
- The S&P 500 fell by approximately 34% in just over a month.
- By August 2020, it had fully bounced back.
- By the end of 2020, it finished the year up around 16%.
- The Nasdaq-100 saw an impressive rise of about 48% in 2020, driven by strong tech sector performance
- Investors who invested €10,000 in broad ETFs like MSCI World near the market low saw their portfolio grow to over €15,000 within a year.
- Even more astonishing? China-focused tech ETFs, such as KWEB, more than doubled in value within a year after their lows in 2020.
