Latest Market Volatility

Author: Huw Jones
Published: 26th February 2020

Market volatility is inevitable because risk and return are related. The only thing we can control is how we react to it when it does. Here’s a light-hearted look at the emotional rollercoaster of investing using emoji: Investing Explained in Emoji

Market volatility can happen for any number of reasons – this time it’s Corona Virus. It could quite easily have been Brexit or the recent storms and flooding. Volatility is a common feature of investment markets and is to be expected.

Here’s a reminder of the investing basics that explain market volatility.

  1. Short term volatility is exactly that – short-term. Reductions in values are temporary losses. Only encashment makes them permanent. Don’t turn a paper loss into a real one.
  2. Volatility is a feature of investment markets. Risk and return are related. Without risk there can be no return. We stress test your plan annually to assess the impact of such falls.

Thirdly, you are invested in stocks all over the world. But as well as being extremely well diversified, our portfolios contain other asset classes that sit alongside stocks. They are designed to ‘soften the blow’ of volatility. Depending on your risk tolerance and capacity for tempory loss, your portfolio may only partially invested in the stock markets. In this case, the falls that the stock markets are suffering are not necessarily the short-term, temporary falls of your portfolio.

Don’t just do something, stand there

Our advice during these times is to ‘stay in your seat’. It is often said that the markets reward the patient and punish everyone else. Sit tight, do nothing.

There is a common argument raised during times of market falls that we should just sell and wait for markets to return to normal (whatever that is!). There’s two reasons why this should be avoided:

Firstly, selling will crystallise losses, turning a paper loss into a real one.

Secondly, we have to go back into the market at the right time. This is very difficult to do because need to guess correctly twice.

Statistics show that more money is lost when trying to time the markets than by simply ‘riding it out’. Your investments are for the long-term. Having patience and discipline is the key ingredient to investment success.

We know that it can be scary but it is at times like this that we can really show our value and stop you from making the mistakes that the ‘average’ investor makes.