^{Building Wealth} How to build steady investment strategies through market ups and downs

Building steady investment strategies through market fluctuations

By their nature, financial markets are volatile. Asset prices change in response to many factors, including the broader economy, government policies, company earnings, industry trends and business and consumer confidence. Each of these, in turn, can be influenced by geopolitical events and changes within the economy itself. For investors, this presents both a challenge and an opportunity.

The challenge is obvious: volatility can unsettle portfolios and rattle long-term plans. But the opportunity can be far more rewarding, as dislocations create entry points and reset valuations in ways that can reward patience and discipline over time. So, how can investors navigate through cycles and maintain steady returns without being pulled into the market’s constant ebb (market downturns or contractions) and flow? Here are five top strategies.

1. Leverage volatility

A useful starting point is to reframe volatility not as a bug but as a permanent feature of modern markets. In periods of low volatility – such as the years following the global financial crisis when central bank liquidity kept risk premiums compressed – investors often grew accustomed to smoother conditions. But history shows such stretches are the exception, not the rule.

Market insights: UAE and global benchmarks in a volatile era

Just in the United Arab Emirates (UAE), markets have grown and contracted over the past five years. The Abu Dhabi market fell 0.5% in 2020 before growing 68.2% in 2021 and another 20.3% in 2022 and contracting 6.2% in 2023 and yet again by 1.7% in 2024. Similarly, investors were also on the Dubai market rollercoaster: falling 9.9% before climbing 28.2%, 4.4%, 21.7% and 27.1% during the same time period¹.

Meanwhile, equity markets in the United States have historically declined by more than 10% in a given year roughly once every two years².

Global fixed income markets, long assumed to be a stabiliser, have seen unprecedented drawdowns since rates began climbing in 2022³.

In this environment, investors are relearning the fundamentals of staying invested while adjusting to new patterns of risk.

Steadiness comes not so much from trying to predict fluctuations, but from building resilience against them. Institutional investors – sovereign funds, pension plans, endowments – approach this with discipline, setting allocation ranges and return targets that anchor them against short-term swings. Retail and mass-affluent investors can adopt similar principles.

2. Recognise it’s about time in the market, not timing the market

Clarity of time horizon is crucial for investors. Long-term goals such as retirement savings or intergenerational wealth transfer benefit from a strategic allocation that doesn’t shift wildly with quarterly data releases. Defining the end objective allows the investor to weather interim volatility without reacting impulsively to noise. A 60-year-old planning for retirement should pay little heed to quarterly fluctuations of sectors and corporations. Patient investors rode through the dramatic changes over the past decade including a few oil price crashes, the pandemic, geopolitical tensions, wars in several regions and international trade tensions. A portfolio that sought to time each of these turns would almost certainly have led to losses and heartache.

3. Build a diversified portfolio

In contrast to a portfolio based on volatility, one built on a diversified core – with exposure across equities, fixed income and alternative assets – would have had the capacity to absorb drawdowns in one segment while benefiting from rebounds in another. The lesson: diversification and steadfastness can help ride through blips.

However, diversification itself is going through structural changes.

Market insight: Rethinking the 60/40 rule

Traditional 60/40 equity-bond portfolios, long the backbone of steady investing, came under stress when equities and bonds sold off simultaneously in 2022⁴.

That’s where a financial adviser can help with structural changes to a portfolio, slowly and over time.

Going forward, a broader mix that includes infrastructure, real assets, private credit and thematically aligned exposures such as clean energy or digital infrastructure could provide portfolio diversification. For investors with smaller ticket sizes, mutual funds and exchange trade funds (ETFs) tracking these segments offer practical entry points. The guiding principle remains: widen the portfolio, plant several seeds in different areas and watch them move at their own pace.

Discover the fundamentals of smart investing through ETFs and mutual funds.

4. Reduce risk through dollar- or dirham-cost averaging

Another way to bring steadiness is through systematic investing. Dollar- or dirham-cost averaging – the practice of committing a fixed amount at regular intervals regardless of market conditions – remains one of the simplest ways to counter volatility. By investing through both highs and lows, the average cost of entry smooths out, and the focus becomes on time in the market, not timing the market.

For investors, especially those building wealth steadily through salaries, this mechanism acts as an automatic stabiliser. Financial advisers often encourage systematic plans not because they guarantee outperformance but because they minimise behavioural errors that could negatively impact returns over time.

The strategy of “setting it and forgetting it” takes the emotion out of investing. That’s because behavioural finance suggests investors react more strongly to losses than to equivalent gains. This bias can lead to panic selling at market bottoms or excessive caution during recoveries. Developing a disciplined investment framework, anchored in pre-set allocation ranges, rebalancing rules and clearly articulated goals, helps to counter investor irrationality.

5. Keep an eye on risk management

Investors and their financial advisers should also be mindful of risk management such as liquidity planning. Investors who are forced to sell assets at unfavourable times, especially to fund expenses or meet margin calls, are the ones most hurt by volatility. Holding sufficient cash – at least six months of salary – ensures that long-term investments are not disrupted by short-term needs.

Volatility is an unavoidable part of investing, but it doesn’t have to derail long-term goals. With these strategies, investors can build resilience and confidence through cycles. By developing patience and discipline, what feels like turbulence today can become the foundation of sustainable growth tomorrow.

References:

1. https://www.kamcoinvest.com/node/38964
2. https://www.kamcoinvest.com/node/38964
3. https://www.kamcoinvest.com/node/38964
4. https://www.cnbc.com/2023/01/07/2022-was-the-worst-ever-year-for-us-bonds-how-to-position-for-2023.html