Lots of factors are currently creating a great deal of uncertainty for investors; markets have been a bit jittery after such a strong performance in 2019, USA and Iran are causing a lot of tension in the Middle East and Brexit is finally happening. The picture is quite daunting for investors today.
So what do you do?
Well the answer is probably, not very much! Let us explain…
Stick to the plan
Your financial plan was developed to guide you to achieving your goals. Your plan is there to guide you, both when markets are racing ahead and also when they are more volatile. Now is not the time to start second guessing yourself and trying to predict where markets are going. Because you can't predict where they are going, and nor can we. Tune out the noise, stick to the plan and don't let emotions such as greed or fear cloud your decision-making.
Volatility is a feature of efficient markets
Investing doesn't happen in a straight line, you have to expect bumps along the road. 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. Historically, times when markets are volatile have proven to be bad times to make significant investment decisions, as strategies tend to be coloured by short-term factors.
One well tested principle of investing is to stick to the diversified 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. And we all know where these ended up. A key principle of successful investing is to stay diversified across asset classes, geographical regions and sectors. This will protect you against unforeseen negative developments in a single area.
Keep on saving
When short-term volatility happens, some investors are slow to commit more money to their investment strategies. It’s important that you keep the faith and keep saving, as otherwise you are effectively trying to time the market. 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 and as a result if markets are moving around, you are buying in to the market at various price points.This softens the impact of significant market fluctuations.
Remember past successes
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. This will give you a sense of how time is your friend and will bolster your confidence to stick with a consistent investment approach throughout good and bad times. We're not talking about where once-off bets fell in your favour (that one time), instead where you stuck to a long-term strategy and have seen the rewards.
Often it simply makes sense to sit down with an expert who will look dispassionately at your situation, and will reassure you to stick with your plan. We would be delighted to help you.