Investors have experienced a lot of volatility over the last two years, and market declines can be unnerving for investors.
Although volatility may often be characterised as negative, it’s important to understand that it is a normal part of the investing journey. For Fund Managers, falling prices allow them to buy into areas they may have felt were previously overvalued and rising prices provide opportunities for growth.
High volatility equals higher risk, and higher potential reward.
At the start of the Covid-19 pandemic, markets reacted and fell quickly. Investors experienced volatility throughout the pandemic as the situation and restrictions changed. Just as time progressed and life slowly returned to ‘normal’, tensions began to rise with Russia, with stock markets reacting strongly when Russia invaded Ukraine in February.
Seeing the value of your investments fall during these times can be nerve-racking, so much so that you may be tempted to make withdrawals or changes to your portfolio. While there are times when it may be appropriate make changes to your investments, this should be down to personal circumstances rather than periods of volatility.
If you’re worried about market volatility, you certainly aren’t alone. There are ways for you to reshape your thoughts around your investments and understand that sticking to your investment strategy is the best option.
Here are the ways that you can think about your investments during periods of volatility.
Remember, market volatility is expected.
Market volatility can occur, from changes to commerce to politics, to economic outcome and corporate actions, which can be unsettling, but it is completely normal.
There is a reason why putting your money in the market comes with a level of risk, and most investors can expect their investments to fall at some point throughout their investing journey.
By accepting that volatility is an integral part of their journey, they are less likely to be surprised when episodes of volatility occur and are more likely to react rationally and prepare themselves to remain focused on their long-term investment goals.
Volatility is not inherently bad, and for Investment Management teams, volatile assets are brimming with potential.
The importance of long-term investing.
This year so far has been a reminder that markets don’t always go up, but investing is a long-term strategy where you can potentially benefit from allowing your investments to grow over time.
While seeing a decline in the markets can be stressful, consider that these are often short-term movements. As a long-term investor, you should focus on your annual returns compounding over time to maximize your returns.
Earning interest on your interest as well as your original investment can make a huge difference over time, even if you’re adding small amounts regularly.
Volatility can present opportunities for some investors to add value to their portfolio, it’s exactly these market movements that fund managers aim to capitalise on for growth and look for value to generate returns above benchmarks.
Investing doesn’t have to be hard work, stick to your investment goals, trust the power of compounding, and leave the rest to the experts.
Stay invested where you can… it’s time, not timing.
Diversification is key.
By spreading your money across different asset classes around the globe, including equities and bonds, it can help to reduce the impact of volatility on your investments and their overall performance by reducing risk. Diversification is designed to help reduce the volatility of your portfolio over time.
With diversified funds, different asset classes behave differently depending on the market conditions. Having a variety of different investments in your portfolio can mean that, if part of your portfolio is down, it doesn’t mean that your entire portfolio is.
Check with a Financial Adviser.
It is crucial for investors to understand that volatility is inevitable. However, it is important to remember that if your portfolio is down due to current market volatility, you haven’t physically lost any money until you decide to disinvest.
Your adviser can help you to remain grounded understand uncertain times, and what this means for your long-term goals. They will also review your short-term goals and discuss any adjustments that may need to be made to your portfolio.
With fear and uncertainty created by unpredictable markets, your financial adviser’s advice may prevent you from making decisions triggered by short term anxiety and encourage you to focus on small achievements that could pay off in the long term.
If you would like to speak with an adviser, or receive financial advise, please contact us today.
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With investing, your capital is at risk. Investments can fluctuate in value, and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. The information contained in this publication does not constitute a personal recommendation and the investments referred to may not be suitable for all investors.
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