Research & Insights

Investing in volatile markets

Market fluctuations are an inevitable part of investing and often coincide with events that cause uncertainty, such as the ongoing Brexit negotiations, other political or geographical unrest, surprise or unexpected results from business sectors...to name a few.  However, the ups and downs influenced by these events aren’t necessarily bad for your investments.

The circular life of investments

It’s in the nature of markets to have peaks and troughs and sharp rises often follow steep falls as markets tend to overreact to events. Over their lifetime, investments inevitably lose and gain momentum.

It’s easy to be unnerved, but it’s important to consider your investment as a long-term plan, not a short-term project, so sticking things out may be a sensible option for many investors.

Volatility and risk

There is a crucial distinction between volatility and risk. A volatile market is characterised by large, sudden movements in price, making short-term investment difficult and unpredictable.

Risk, on the other hand, is the possibility of losing some or even all of your investment. A volatile market certainly carries the risk of losses, but might also offer the promise of greater gains. If you can be flexible with the timing of your buys and sells, a volatile market doesn’t have to be bad news.

Investing in volatile markets

When markets start to fluctuate and other investors start to panic, there are ways to keep your investment growing:

1. Clarification of your strategy

It can be helpful to bear in mind:

Your goals: Are you aiming for a particular amount or percentage of growth?
Your time horizon: For example, the number of years you have left until you retire
Your tolerance to risk: This reflects your broader financial situation, and may include considerations such as savings, mortgages, debt and income for example

Looking at the bigger picture can give you a clearer idea of what you’d like your strategy to be.

2. Diversification

You might want to consider spreading your investments across a range of funds, geographical regions or even a mixture of both to help dilute risks.

Keep in mind that diversification doesn’t ensure a profit or guarantee against losses.

3. Switching funds

Switching to a lower risk fund such as a fixed interest fund that invests in a range of corporate and government bonds in the UK and overseas might be an option to consider.

Alternatively, switching to funds more suited to the economic conditions could also be an option. If you decide you need to rebalance your portfolio, switching between our funds is easy.

4. Invest regularly

When you invest in a fund your money buys units, which are a share of that fund. If you invest regularly, your contributions will buy more units in a fund with the same money when the value is falling.

5. Let volatility work for you

A fluctuating market can be an opportunity to build your investments and take advantage of lower unit costs.

6. Future potential

Investing is all about the future. As you’ll have continually heard: past performance is no indicator of future success. With this in mind, it’s important to remember that even though we use past information to inform our future decisions, future potential is the key to investments.

Conclusion

Be aware of risk during times of volatility, but don’t necessarily let it put you off. There is no 'best' time to invest. When the market wobbles, remember that it may be the result of a set of circumstances in the current economic cycle and shouldn’t necessarily put you off from investing or staying invested.

You could avoid volatility entirely by staying in cash, but you will also miss out on any upswings that might follow and any income that comes in the meantime. If you wait until the 'perfect time' to invest you could find yourself waiting forever.

It is important to remember
The value of an investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

Changes in exchange rates between currencies may cause the value of an investment and the level of any income to rise or fall.

Past performance is not a guide to future performance.


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