When investors react to economic, political or company-related changes, this can result in significant price fluctuations. The markets‘ reaction to such events is often more violent than necessary. It is therefore all the more important for investors to remain calm and not to act hastily.

Once you realize that volatile phases are unavoidable in long-term investments, you can react rationally. Focus on your long-term investment goals to more objectively assess short-term periods of volatility. And if you stay invested even in low phases, you often avoid losses that would arise if you sold your investments prematurely.

Shareholders are often rewarded with an above-average return for the additional risk they take compared to bond investors. It is important to be clear about one thing: the risk value of an investment and its volatility are not synonymous. Volatility describes how drastically the value of an investment can fluctuate. The risk value, on the other hand, measures the probability of a loss. A stock’s value may fluctuate, but over the long term, stock prices are driven by corporate earnings. Put simply, even if a stock’s value fluctuates greatly in the short term, it may still appreciate in value over the long term. Investing in equities has typically outperformed other asset classes, net of inflation.

Market corrections are a normal part of the stock market. It is not uncommon for a stock or index to lose 10% to 20% in value from its previous high during a long-term bull market. Experience has shown that markets have always been able to recover from losses.

Investors who remain invested throughout usually benefit from the long-term uptrend in the stock markets. Conversely, investors who buy and sell frequently risk eroding their future profits. Because they risk missing out on market rallies and the best days to buy stocks that often occur during downturns.

Irrespective of the term of your investment, it is worth investing regularly in a fund, for example every month or quarter. This strategy is called the average cost method. While this does not guarantee profits, nor protect investments against a market downturn; however, regular investors who also invest in weak market phases benefit from the more favorable prices. This lowers the average purchase price.

During a falling market, regular saving can be somewhat counterproductive for investors. However, this is when some of the best investments can be made, as assets are cheaper and benefit from a subsequent market recovery.

Investing your wealth in just the right investments in volatile markets is not easy. During such market phases, the prospects for success of different sectors or markets can change quickly. That is why it is very risky to only invest in certain markets or sectors. In order to offset or minimize possible losses, it is advisable to diversify your investments as widely as possible.

One solution to achieve such a diversification are actively managed funds that contain different asset classes and focus on long-term returns. The risk weighting is managed strategically and adjusted to market conditions. Another way to reduce market-specific risks is to invest in different countries.