How to manage risk amid market volatility?

Investments are primarily about probabilities, and since probabilities are mostly less than 100, one can always make a good decision and end up with bad outcomes. However, the reverse is also true, i.e., investors make bad decisions and still land with good outcomes. The former is ‘Risk,’ and the latter is ‘Luck.’ We see risk as mostly happening to us but, luck is mostly our ‘effort.’ Subsequently, we constantly adjust Return to Risk but never to luck.

Therefore, the most critical aspect of risk management is the understanding that risk occurs when we least expect it to happen.

Setting investment goals is as crucial as investing in markets; in either case, one cannot escape volatility. The positive side is that one can manage volatility by making goals according to the asset class and systematic approach. For short-term traders, volatility hits very hard, while volatility in equities tends to even out over time in the longer term. Therefore, a systematic or phased approach helps even out volatility.

What is the ideal level to enter a stock? In a volatile market, this question makes little sense because it is practically impossible to catch the tops & bottoms of the market on an ongoing basis. Conversely, if one adopts a phased approach to investing, the volatility can be better negated. A phased approach will offer the rupee cost averaging. This will, in turn, make one get the best price when buying. In the long run, this will enhance portfolio returns with a reduced average cost of buying. We feel this is an excellent passive method of handling volatility.