The Best Investment Ideas for Volatile Markets

While some financial markets and asset classes are inherently volatile, most are experiencing a level of uncertainty that they haven’t faced for some time.

This is thanks largely to an increasingly challenging macroeconomic climate, which has seen inflation spiral out of control across the globe (it recently reached a staggering 10.1% in the UK) and base interest rates hiked as a way of combating the rising cost of living over time.

In the short-term, however, this is increasing the cost of borrowing at a time when households and businesses are already struggling to make ends meet. Such a climate does create opportunities for investors, however, who can leverage volatility to their advantage and generate some serious returns. Here’s how!

The Benefits of Volatility

In simple terms, volatility is a statistical measure that addresses the size and scale of price movements within a particular market.

There are many ways to measure volatility from a statistical perspective, while price fluctuations are always measured and compared over a specific period of time.

Higher volatility describes a markedly larger dispersion of price moves, while this can be driven by market uncertainty, increased demand and rampant speculation.

While this may send the most risk-averse investors running for the hills, it’s important to note that volatility can also unlock incredible opportunities for those with a healthy appetite for risk and a penchant for achieving incremental profits within a relatively short timeframe.

For example, let’s say that you’re trading forex and targeting the highly liquid EUR/USD pairing. Global demand often drives huge spikes in volatility during daily trading, with this marked by constant (albeit relatively small) price shifts.

If you engage in scalping or day trading techniques, you’ll actively look to trade these price movements by opening and closing positions in a matter of minutes. This may unlock small but consistent gains throughout the day, while your profitability will increase in line with volatility.

3 Investment Ideas for Volatile Markets

Regardless of your outlook and risk appetite, it’s always possible to profit and achieve viable gains in volatile markets. So, here are a few investment ideas to keep in mind in the current climate:

  • #1. Invest in High Quality Dividends: Dividend stocks refer to premium, blue-chip entities such as Coca-Cola. These stocks are defined by high levels of performance and incremental dividend returns, which provide a relatively secure source of income in challenging markets. With a global recession looming, you should only target equities with strong fundamentals, including low debt, consistent profitability and a focus on sustainability.
  • #2. Major Currency Pairs: The entire forex market is built on volatility, while major currency pairs like the aforementioned EUR/USD are also highly liquid and easy to buy and sell in real-time. Given that forex is also a speculative investment asset that enables you to hedge against a specific pair and profit even as the market depreciates, this may be a viable option in the current climate (especially if you have a healthy appetite and appreciation for risk).
  • #3. Trade Gold: They say that cash is king in a recession or during periods of economic volatility, so optimising your cash holdings as part of your investment management strategy is highly recommended. Gold is also a good option, as this asset is known to appreciate in value when the markets waver, while like cash, it provides a secure store of wealth during austere times. Of course, you must utilise these assets as part of a diversified portfolio, but the nature of your asset allocation should change in line with the economic climate.
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