Investing in volatile markets

Volatile markets
  • Investment management
  • 5 minute read

In volatile markets, it is perfectly normal for investors to become nervous, question their investment approach and concentrate on the potential for short-term losses over their longer-term investment strategy. In volatile times, there is often a temptation to withdraw your money from the market or hold off investing altogether, waiting for the ‘perfect’ time to invest. But when is the perfect time? Values can fall further, or not rise as expected, and you could be putting your money at greater risk by waiting.

Time in the market, not timing the market

Attempting to time the exit from, or entry to, financial markets is fraught with difficulty and getting it wrong can prove very expensive, impacting long-term returns. Often the largest moves in markets, both up and down, occur in concentrated periods of stress and euphoria, making it incredibly difficult to forecast and time. Our belief is that staying fully invested, in a portfolio appropriately managed for your risk-level, is very often the best strategy. The chart below illustrates the importance of long‑term investing. It shows the impact of remaining invested in shares (represented by the Morningstar Global Equity Index), versus selling the investment at the bottom of the market in 2008 (a period of peak stress) and reinvesting one year later when the market had stabilised.

Past performance is not a reliable indicator of future returns.

The next chart highlights a number of events including the 9/11 Attacks, the Global Financial Crisis, the Greek Debt Crisis and more recently, the Coronavirus outbreak.

Events that many perceived to be negative at the time were absorbed by the market, whilst others resulted in significant periods of turbulence - such is the unpredictable nature of short-term market moves. Unsettling as this can be in the moment, we believe that it is important to consider your investment strategy over the long-term.

Whilst it is difficult, if not impossible, to remove this volatility altogether, we believe that multi-asset investing provides diversification which can help you navigate through periods of volatility. On behalf of our clients, we not only invest in company shares, but also other investments across the risk spectrum. By blending shares with lower-risk bonds and alternatives such as property, infrastructure, gold and absolute return funds, we aim to smooth the journey towards achieving our clients’ financial goals.

If you are considering an investment in these volatile times, or are nervous about the risk in your portfolio, get in touch to discuss the options available to you to.

The value of your investment can go down as well as up, and you may get back less than you invested.


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