Even the slightest hint of volatility is enough to see many investors run for the hills, while others will throw all of their money behind Australia's largest stocks, given that they are normally considered to be more stable in times of economic unpredictability.
By now you will have heard of the situation between Russia and the Ukraine on the Crimean peninsula. Despite the fact that war could break out at any moment, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has actually risen over the last two days, after taking a belting early on Monday as investors sold out of stocks they perceived to possess higher risk.
It rose 0.3% on Tuesday and traded 1% higher early in Wednesday's session, driven largely by blue-chips such as Westpac Banking Corp (ASX: WBC) and its banking peers, as well as Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES). These companies often recognise gains as global concerns arise.
Given the current situation, there are a number of mistakes that investors are making under pressure.
First and foremost, investors shouldn't be panicking about the situation being played out in Eastern Europe. War has not yet been declared and while the volatility could last in the short-term, there is nothing surer than the fact that the market will still rise in the long-run.
Instead of selling out of your stocks in a state of panic, stop and assess for a moment as to whether you really think the crisis will have a lasting effect on the company itself or if it will harm its growth prospects in the future.
Secondly, while it is vital to maintain a strong core for your portfolio, your options as an investor are certainly not limited to the big four banks or the supermarket giants – both of which are currently overpriced and stand little chance at delivering market-beating returns. Companies like Telstra Corporation Ltd (ASX: TLS), CSL Limited (ASX: CSL) or even conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) are more reasonably priced and also act as a safeguard against volatility.
The third mistake that investors are making is not buying the "riskier" stocks while they are trading at discounted prices, preferring instead to wait for the volatility to subside. Fools, all stocks are risky, even at the best of times. In order to maximise your gains, you must step outside your comfort zone every now and then and buy stocks when others are throwing them out.
Investing great Warren Buffett himself has stated that he will be buying stocks despite the situation being played out in Eastern Europe.
Foolish takeaway
As an investor, you will forever be exposed to situations like these and although they can certainly be unnerving, it is important that you remember to remain calm and continue to think long-term.
