How to invest in a volatile market?

In the last ten years, most economies worldwide struggled to get back to a pre-crisis state. The data released by international institutions like IMF, OECD, and the World Bank downgraded the global growth forecasts for the current year and the next year.

The major economies of the world - the US, Germany and Japan have been hit by the trade war. The Donald Trump tax cuts are expected to hit the economy, and certain accurate recession indicators are flashing warning signs.

The recession indicators embrace the yield curve which could be seen in every recession in the US - as an inversion of the yield curve. This indicates the long-term yield factors have fallen significantly below the short-term interest rates.

The inverted yield curve and Brexit

Typically, the inverted yield curve is linked to recession, considered one of the most accurate predictors of a recession. Low-interest rates also indicate low growth and inflation, which are directly linked to the economic downturn.

Such curves indicate a slowdown in the economy where the investors want the banks to reduce rates to prevent a recession. Even countries having zero short-term rates have negative long-term rates.

The BoE warned that a no-deal could trigger momentary shock to the economy, which can cause widespread business disruption. BoE’s governor Mark Carney said such disruption could affect EU households and amplify volatility.

• The stock markets are becoming unpredictable in the current turmoil, but certain strategies can be fruitful.

• It is advised to accumulate cash and cut back to prevent a loss. Many other types of investments can be categorized into stocks, bonds or cash equivalents.

• Stock investment is made in a specific company, and its value depends on its earnings, assets and business.

• Investors can buy or sell depending on the expected returns or risks.

• To invest in a safe alternative, buy high-dividend stocks as the dividend cushions against volatility.

• Buy in high-value stocks representing a bargain in price to book or above-average dividend yield.

• There can be options to buy or sell stocks by a set date or price. Options give flexibility where the contracts don’t obligate buying or selling.

Bonds allow the investor to earn by giving a loan to the company or government, where the bond issuer pays back interest for the money loaned. Buy stocks or bonds in sectors that are expected to gain in future.

Certain rate-sensitive sectors like consumer staples, utilities, communication and financials can outperform others. Despite volatility- healthcare is always considered to be a great option.

Mutual funds can provide ways to purchase a set of different types of investments in a single transaction, and the funds, again, can be sold in the market to gain profits.

The funds which passively track an index like S&P 500 tend to cost less as active managers do not manage them. Still, the risk associated with such funds depends on selecting investments within the individual fund.