06 Dec Six tips for volatile markets
Given the current political situation in the UK, Europe and the US, you may be worried that we are facing more stock market volatility in the coming months and years. With all the media coverage, and economic predictions changing almost daily, this can be disconcerting, worrying or in some circumstances cause an investor to panic and make bad decisions.
However, if you take a step back and think of market volatility as just another life event you might be able to add a bit of perspective. Everyone’s life is full of highs and lows, and even when life looks particularly bleak, we all know that things invariably get better. It’s called weathering the storm … which many people do by battening down the hatches and staying put. I’m sure you can see where this is leading, but sometimes it doesn’t hurt to be reminded.
If you have some form of equity investments, it’s going to be unsettling when portfolios and the markets head into the red. You might ask yourself what you should I do or start to second guess your previous decisions. But before you do anything, take time to think about these six investing basics that come in handy during market volatility:
- Don’t panic! Letting emotions dictate your investing strategy is a risk you shouldn’t take. Short-term decisions can have long-term consequences on your portfolio. Being patient will pay dividends.
- Periods of volatility are normal: All markets move in cycles and periods of steep contraction are absolutely normal. While the length of market contractions varies, periods of growth and expansion are usually waiting on the other side.
- Know your portfolio: Understand your investments and how specific assets represent different goals and outcomes. Keep in mind your tolerance to investment risk and your time horizon and if either has changed consider rebalancing your portfolio. Diversification can potentially help balance risk during a downturn and mitigate extreme swings in value.
- Stay the course: Remember your financial plan and long-term goals and stick to them. A disciplined investment approach is the best strategy for handling market downturns and will likely enable you to participate when the markets rebound.
- Consider opportunities: Some periods of volatility are a good time to take advantage of investment opportunities in line with your long-term plan. If you are making regular investments then you will be obtaining an average price for your investments, so some volatility is not necessarily a bad thing.
- You’re not alone: Your financial planner should be there to help you when you need it. They can guide you through difficult markets and be an independent voice of reason that helps you to stay focused on your long-term goals.
So, when market volatility increases and prices fall remember this – you’re not investing in these types of assets for short term gain but to meet your long term goals. Take a step back and consider the six points above but most of all don’t panic!