Top 4 Trading Strategies for Highly Volatile Markets

by Trading 101  //  Dec 31, 2018

For over a year, the stock markets have been steady in terms of growth and gains, but recently prices have spiked in how volatile they are. Many investors were set into a frenzied panic, having become accustomed to the slow and safe pace the market had been moving at in the last few months. There are macro-level changes moving in the global economy, with the GDP of more and more countries being on the rise, all of which you learned in your Trading 101 courses. Coupled with the fact that employment rate is reaching an all-time high in several major countries for over the last decade and you have a rapidly evolving market.

With the economy in shift, here are some of the most useful strategies you can use moving forward in these uncertain times.

1.Dividend Payers

USA has had a relatively recent tax cut as part of the current administration’s strategy to promote economic growth, meaning that the likelihood of strong dividend payouts has gone up. While there hasn’t been a change in long-term bonds, prospects for dividends are on the rise. This is paired well with an investment in defensive strategies such as putting money into funds such as American Century Equity Income Fund (TWEIX) or American Funds Washington Mutual Investors Fund (AWSHX) which are proven to do well in circumstances just like these. Naturally, VDADX (Vanguard Dividend Appreciation Index Fund) is a good alternative to those two, providing a strong payout rate, providing anyone who passed their trading 101 class with some good value.

2. Risk Reduction

Some funds are extremely low risk in nature and have the numbers to prove it. A good example is the VWSTX, or the Vanguard Short-Term Tax Exempt Fund. Another one is the VWINX, short for Vanguard Wellesley Income Fund. These yield 1.32% and 3.26% and can be considered some of the lowest risk funds in the market. VWINX especially is a well-balanced fund made up of good value stocks as well as qualitative bonds. The last stock to look into for a defensive strategy is FPACX, the FPA Crescent Fund. This one in particular has been adept in the past year in terms of mixing defensive and offensive investment strategies.

3. Selective Inflation Protection

An investor with a large amount invested in bonds is vulnerable to overall losses in capital as a result of the combination of inflation and interest rates. Interest rates will spike due to the inflation and don’t play well together with tax. A fund like the PCRDX (Pimco Commodity Real Return Strategy Fund) can be risky at the moment due to its investment in bonds affected by inflation, despite its considerable yield of 8.54%. VTIPX is in a similar state, however has a far lower expense ratio bringing it to a lower yield of only 1.5%.

4. Small Cap Value

Now is a great time for tech investors to change course as the Dotcom boom has officially ended and the internet has become just another commodity. Large-cap growth stocks are currently outperforming small-cap value stocks by an unmatched margin over the last 10 years. Some options to consider here to change direction with are the Royce Special Equity Fund (RYSEX), the Vanguard Small-Cap Value Index Fund (VSIAX) or even the American Beacon Small Cap Value Fund (AVPAX).

These are 4 strategies that can help any investor overcome the volatility of today’s market, as the market adjusts to changes and trends in the global economy. The important part of these plans is to think long-term and to diversify in order to build a robust portfolio that’ll do well regardless of how volatile the markets can be.





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