How to handle volatile shares Investors should ask themselves now how they would react if share prices plunged again. WHAT are your top tips to help people handle volatility on the sharemarket? GEN Y - Justine Davies FIRST up, be aware of the difference between price volatility (the variation in price from day to day) and persistent underperformance (meaning that the stock you own is a dog). Make sure the shares you own are volatile rather than tanking! If your sharemarket investments are volatile, treat them exactly as you would treat a property investment: Ignore daily fluctuations and focus on the end goal. Look at it this way: the price at which you buy a property depends on countless factors, including the eagerness of the vendor to sell, the competency of the real estate agent, the number and eagerness of other buyers in the market, the current state of the rental market and even external factors such as the weather. When you sell a property, the price you receive also depends on those variables. Yet when it comes to our property, we don't assess those constantly changing variables on a day-to-day basis. Sure, we keep tabs on the trend of the market, but we don't have the potential sale price of our property appraised every day. When it comes to shares though, the potential sale price of our investment is there every minute of the day. In this way, we track the volatility of the sharemarket. It's fantastic from a transparency point of view, but it's bad if it causes us to worry about the daily changes. See sharemarket volatility for what it is: white noise. If you have good stock, haven't overextended yourself and are not looking to sell, the daily fluctuations shouldn't matter. Justine Davies is finance editor and commentator with financial research and ratings firm CANSTAR. GEN X - Bruce Brammall DUST off your golf clubs. Take a chill pill. Close down your internet trading screen. Grab your boy, a footy and head to a park. Get down on the floor with your daughter and find out what she and Barbie have been doing. Sir, calmly step away from your iPhone. Put it down, sir. Don't aggravate the situation by looking at Bloomberg. You and your family will be safe, if you just ... put down ... the phone. The best way to handle market volatility is to ignore the daily noise. If your mood was determined by the most recent market move, you'd be constantly flipping between euphoria and suicidal thoughts. It's a bit like the "opening of the ark" scene in Raiders of the Lost Ark. Marion, don't look at it! Shut your eyes, Marion! Or get vaporised like the Nazis. There aren't enough pills in the world to stop your ticker having that heart attack. Next, understand the four investment asset classes and their volatility. From low volatility to high, they are cash, bonds, property and shares. Shares are volatile. That's "the truth." If, like Jack Nicholson said, "you can't handle the truth," then shares might not be for you. Balance and diversification: Shares should be just one part of your investment portfolio. The more you fear volatility, the larger should be your holdings of cash and fixed interest. For the typical "balanced" investor, about half of your investments should be in domestic and foreign shares. Some will be less, some more. Bruce Brammall is the author of Debt Man Walking (debtman.com.au) and principal adviser with Castellan Financial Consulting. THE sharemarket is traditionally the most volatile of the different investment options, but the reason people get into it is because over time it tends to produce higher returns. So if you're going to invest in shares, it's important to know your risk profile and its compatibility with volatility and market movements. For Baby Boomers, investment time frame is key and should be a big factor in your decision-making process. Fewer years to invest means a more careful and considered approach. So it's important you have a few strategies to mitigate any damage from serious market movements. Make sure you're diversified across a few sectors in the sharemarket. You don't want to be heavily weighted in mining or retail or manufacturing, and then be susceptible to any one of those industries taking a plunge. Also consider that smaller-sized companies are more likely to have a larger degree of movement in share price compared with "blue chip" companies such as BHP and Telstra. These big companies provide clients with less share price volatility and a regular dividend (which brings tax benefits via franking credits). Again, the goal is to maintain a balancing act. Finally, get advice on a transition strategy to start moving your investments to more conservative assets. If you are investing to eventually fund your life in retirement, the last thing you want is to be panicking over sharemarket movements. Peace of mind can often be just as valuable as steady returns. Mark Bouris is executive chairman of wealth management and advice firm Yellow Brick Road. RETIREES - Kerrin Falconer MANY people get spooked by the mere thought of shares - too risky, unsafe and better to stay away from. For many, particularly retirees, the volatility is the hardest to bear. Most retirees just want a peaceful life. They don't want the worry of monitoring the news for any sign that will send the market - and their investments - into a tail spin. The GFC showed how hugely volatile the market can be and it was only the bravest of the brave who toughed it out to come out the other end in one piece. So how did they do it? In the main, they had three guiding principles AND stuck to them. Here they are: Their portfolios only contained very good-quality shares in companies with sound balance sheets and excellent management. Most of these shares would have provided a steady stream of dividends. While the capital value of most of these shares sank like a stone, most had their dividends reduced only slightly. The portfolios would have been well diversified. While there was nowhere to hide during the GFC, some sectors fared much worse than others, such as the financial sector. Also, the media loves to hype any downturn in the market. If you can stick to your guns, knowing that your share investments are solid, sound and sensible, you can ignore the noise. The sharemarket is born to be wild. Roller coaster rides are a feature of its DNA. It can't, and won't change. But bear in mind that what goes down, usually goes up again. Kerrin Falconer is a finance writer with 15 years of financial planning experience.