How to invest in a volatile market?

With inflation and interest rates rapidly rising, the Russian invasion of Ukraine, and high levels of uncertainty many investors will become increasingly nervous about both their current investments and what decisions they should be making about future investments. Here are our top tips for those questions how to invest in a volatile market.

Have property markets topped out? Are we heading for a market correction? Do I need to change my strategy? Or is now a good time to buy?

How to invest in a volatile market – our top 5 tips

In times of great uncertainty, it’s only natural to become concerned about the future and start questioning whether or not you are making the right decisions. However, now more so than ever is a time for investors to take a deep breath. Here are our best survival tips.

1 – Avoid the Noise

There is a huge amount of information online and nearly everyone you speak to is ready to give you the latest advice on what is going on in the real estate market. But are they really ‘experts’? Owning a couple of buy-to-let investments doesn’t make you an expert it simply makes you an investor. Reading too much online can cause information overload, clouding vision and distracting investors from their core vision. Remember property investment is long-term, so don’t get too carried away with specific moments in time.

invest in a volatile market

2 – Don’t check your Portfolio too Regularly

It can be tempting to log in far to frequently and see where your account balance and investments are at. Of course you need to do this from time to time. However, try to avoid logging in too often. Real estate investment is a long-term investment, your portfolio, position or income will not change rapidly. Simply make sure you have enough income coming to cover your outgoings.

3 – Stay the Course

Market downturns can be hard to stomach, but it’s best to maintain a disciplined approach through market cycles. Some investors think that they can sell out of their investment and buy back in when prices start to grow again – but this sort of activity can be costly. People often ‘miss the boat’ and end up buying back at a higher price than they sold at. Meanwhile, they have crystallised their losses and potentially destroyed wealth at the same time. In times like these, remember your established plan and stick with it.

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4 – Consider the best use of your cash

We always recommend maintaining a pot of cash to cover unforeseen payments which may come up over the next 12 – 18 months. Work out what your total costs might be over a 12 – 18 month period including unforeseen maintenance items and ensure that you have the cash to cover around 20% of what those expenses are.

Having some cash in reserve to cover these unforeseen circumstances will prevent a scenario where you may be forced to sell at unfavorable times – particularly in a downturn.

Alternatively, if you have cash that doesn’t need to be retained for this purpose, down markets can be a great time to invest as prices are lower. You will get more for your money, this will work in your favour when the market recovers and you will have built equity that can be deployed in the future to expand your portfolio.

5 – Be decisive make decisions based on data

One of the most important things that anyone can do when faced with concerns about their finances or investments is make decisive decisions based on data. Too many real estate investors make decisions based on ‘gut feel’ – this is never a good plan. Collect as much hard data and evidence as you can and formulate your decisions on the data, then act and move on.

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Opportunity Comes with Volatility

There is no doubt that we are likely to have volatile times ahead. However, for many investors, this volatility will also present opportunities to invest. If you have free capital for investment now is a great time to invest, as inflation and interest rates start to bite the market will very much move in favor of those with cash to invest.

For investors who find themselves is this position now is a great time to be shopping around for a deal. Most successful investors buy during downturns when there is less competition and their cash goes further. Buying at the top of the market and competing with everyone else is a recipe to pay too much for investments.

Property Investment Fundamentals

When investing in property it is important for investments to remember it is impossible to make sound real estate investments unless you can answer the following questions:

  1. Based on the evidence, what is the actual market value of the property?
  2. What will be the net return from the investment after-tax?
  3. Have I negotiated the best deal possible creating maximum leverage?