It’s been a pretty crazy week in the FTSE 100. Movements in the currency and bond markets have meant that the index has whipsawed higher and lower. It has fallen below 7,000 points, although I wouldn’t rule out a rally to end the week. Despite the high volatility, it doesn’t mean that I can’t have strategies to try and make money. Here are several that I’m using, given that I think large swings are here to stay.
Stars of the next economic cycle
The Bank of England expects the UK to be in a recession by the end of the year. However, after a recession comes a recovery stage, then a boom period. I don’t know exactly when this will be or how long it could take. But I do know that as a long-term investor, buying the bright sparks of the future during a recession makes sense. This is because the share price is likely to be lower now during a period of investor fear.
Added volatility can mean that a large move might happen in a relatively short period of time. For example, if a stock drops by 10% in a day, it could trigger further selling the next day as investors panic. This provides me with a great opportunity to buy. I can then hold and wait for the economic cycle to play out over the coming couple of years.
Higher dividend yield potential
Earlier this week, I wrote about why I’m keen to buy Aviva shares at the moment. Heightened volatility saw the share price down 8.5% when I penned my thoughts on Wednesday. The fall helped to push the dividend yield up above 7%, well above the FTSE 100 average.
Given the way the dividend yield is calculated, a sharp move lower in the share price actually helps to increase the yield. I can take advantage of this if I have spare cash to top up my income portfolio.
I need to tread carefully here. If the move lower continues, backed by souring fundamentals, the dividend per share could be cut. This would have a negative impact on the income payments I could hope to receive.
Picking FTSE 100 newbies
Given the volatility, some companies are performing very badly. As a result, the next quarterly reshuffle (at the end of November) will mean some stocks will drop down to the FTSE 250. Other shares from the FTSE 250 will be promoted, giving me different ideas to consider.
Further, even though the initial public offering (IPO) market has been quiet so far this year, there are rumours of some big names going public soon. If this is the case, I’ll have new stocks to think about investing in.
My point here is that large moves in the stock market always provide opportunities, not just risks. Of course, I need to be mindful of the downside. A big drop could turn into a full market crash, that could take months to recover. Yet I feel that if I have the right mindset and try and limit my emotions, I can still make money in the years to come.