InvestorQ : What is the best way to handle the volatility of stocks and markets?
Abhi Yadav made post

What is the best way to handle the volatility of stocks and markets?

Bhavika Nehru answered.
3 years ago
That would largely depend on the nature of the volatility. It depends on whether the volatility is caused by stock-specific factors or by macro factors. On rare occasions, like in 2008 post-Lehman, we have seen all asset classes losing value. In other times, you can diversify your risk by moving to assets that are less or negatively correlated with equities. Parking your money in a debt fund or government bonds is one option. If you are just looking for a temporary shield against volatility then you can also look at liquid funds that may offer lower returns but can give you instant liquidity without any liquidity costs. Remember, shifting out of asset classes and shifting back to them has transaction cost implications and also tax implications. You must, therefore, assess the merits of such a shift in post-tax terms to be really meaningful.
The basic idea is that when you diversify, you spread your risk across more asset classes and so your overall risk reduces. This is the key to not putting all your eggs in one basket. When auto does badly, metals may do well. When bonds do badly, equity may do well. That is how it goes on.