Five tips for volatile markets

Posted by Liz Rees in Latest insights category on 04 Mar 20

Five tips for volatile markets

1. Keep calm

It is important to remember that making investment decisions based on emotions is rarely a good idea.  Instead, take a step back and take time to review the situation. Think about what you are trying to achieve with your investments and what, if any, actions you can take to help you achieve your goals.

2. Diversify

Typically, investors expect their investments to grow, yet it is just as important to make sure your capital is protected. It is easier to grow your investments if you haven’t lost 20% in the first place. Diversification is essential; investing in different asset classes means some will rise whilst others fall.

Some assets have, in the past, tended to perform well when investors are risk averse, although there’s no guarantee that they will continue to behave this way in the future. These include gold, government bonds, and absolute return funds. Such assets may not perform as well as shares in the long-term but could help to reduce volatility and protect the capital value of your portfolio.

3. Invest more

Brave investors may see the recent stock market falls as an opportunity to buy. If you have some cash ready to invest, some company share prices are significantly cheaper, although of course they may fall further still.

However, don’t buy just because share prices are cheap. Make sure you consider any new purchases in the context of your overall portfolio, otherwise you could end up taking on too much risk.

4. Regular Investing

Regular investing can help smooth out the ebbs and flows of share prices. A monthly savings plan into an ISA or SIPP removes the risk of investing all your money at the top of the market. It also means if your investments fall in value then you could add to them at a cheaper price and bring down your average purchase cost.

5.Think long term

Investing is all about the long-term, not what happens today. If you focus on the long-term then it can help to put any sell-offs in context. Some of the most respected investors pay little attention to geopolitical events, because they can’t do anything about them. Instead, they stick to their process and assess fundamentals, taking the view that the strongest companies will survive and prosper over many years.

Terry Smith of Morningstar gold-rated Fundsmith Equity fund and Nick Train of silver-rated Lindsell Train Global Equity fund are among those that take advantage of weakness in share prices to add to favoured companies. Train announced that he has topped up holdings in Diageo and Remy Cointreau because he felt share price falls were overdone.