Lots of factors are currently creating a great deal of uncertainty for investors; Britain is breaking up with Europe, the political and economic picture in Italy is looking quite unstable and we’re all wondering just how strong the new friendship turns out be between President Trump and Kim Jong-un. Then when you consider interest rates at rock bottom, uncertainty caused by global terror and other such negative factors, 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
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. The markets regularly experience short-term volatility, but to try and time this volatility usually turns out to be folly. 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.
Volatility is not the enemy
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. 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 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. 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 calamitous events in a single area.
Don’t stop believing (or saving)
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, thus ensuring you’re not exposed to the risk of investing and be exposed to an immediate fluctuation.
Look backward as well as forwards
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.
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.