2018 ended with a bit of a sting in the tail for investors, where we saw a lot of volatility in markets and a modest correction. While many analysts are forecasting single digit growth in 2019, they are also suggesting that 2019 may be another bumpy ride for investors with more volatility in markets. We fully recognise that volatility can cause uncertainty and lack of confidence for investors, but it's our job to help you to avoid making mistakes now that will hurt your long term financial future.
Here are a few habits and behaviours that we believe will stand you in good stead throughout 2019, and will prevent you from making short term mistakes that will negatively impact you in the future.
Your financial objectives are paramount - keep them in mind
First and foremost, remember your investment objectives, and crucially your investment timeframes. In most cases, these are medium to long-term – at least they should be if you are invested in any sort of risky assets. These time frames are critical to your investment success. As we have seen in recent months, markets regularly experience short-term volatility. To try and forecast market movements and time this volatility usually results in further losses - none of us have a crystal ball. Research tells us time and time again that staying invested is the key to long-term success. Investors who look to sell out at the top and buy at the bottom usually miss both points, and often by very wide margins.
When short-term volatility happens, some investors are slow to commit more money to their investment strategies. This is effectively trying to time the market. It’s important that you keep the faith! Keep investing, although talk to us about the best way to do this. It may make sense for you to employ a strategy such as “euro cost averaging”. This is where you invest a fixed amount at regular intervals. This ensures that if markets are moving around, you are buying in to the market at various price points. As a result you are not exposed to the risk of investing all of your money, to be followed closely by an immediate fluctuation.
Volatility is part and parcel of investing
Volatility is simply a feature of investment markets which go through periods of both calm and volatility, sometimes in line with the market cycle, at other times reacting to once-off events. At the end of 2018 we saw potential trade wars, Brexit and tech stocks losing their lustre among other factors that caused some jitters in markets. Times of volatility have historically proven to be bad times to make significant investment decisions, as strategies tend to be coloured by short-term factors. Don’t let your emotions cloud your decision-making.
A diversified portfolio is key
A far more robust approach to investing is to stick to the asset allocation approach that was used in constructing your portfolio, as this is more likely to deliver long-term success. There are endless examples of investors chasing that one sure bet – technology companies in the late 1990’s, bank stocks in Ireland and foreign property investments in the 2000’s. All ended in tears. A key principle of successful investing is to stay diversified across asset classes, geographical regions and sectors. This will protect you against unforeseen calamitous events in a single area.
Look at what you've already achieved
While of course we are always at pains to point out that past performance is not a guide to future performance, at the same time it’s sometimes worth looking back and seeing where you came from. This hopefully will give you confidence in the future! Look at an investment that you've had for a long time – this could be an old pension fund, a children’s education fund or even your family home. Or for example, just look at stock market returns over any 10year+ time frame. With very few exceptions, the results are extremely heartening - often that policy that you haven't touched has been your stellar performer! This will give you a sense of how the passage of time is an investor's friend, and this will hopefully bolster your confidence to stick with a consistent investment approach throughout good and bad times.
Often it simply makes sense to sit down with an expert who will look dispassionately at your situation and reassure you, or guide you towards a change. We would be delighted to help you.
Important: Past performance is not a guide to future performance