Stock markets have fallen heavily during the past week, impacting on many people’s pensions and individual savings accounts (Isas).
This needs to be put in the context of a nine-year bull run which has seen many savers make large gains in their investment portfolios.
For most people relying on pensions and Isas, the investment choices they make with them are too important to get wrong.
It is, therefore, essential to get the right independent financial advice, especially as your fund sizes grow and as you approach or move in to retirement.
Here are a few of our investment strategies for volatile markets.
The multi asset approach
Nobody can consistently predict which asset classes or sectors will perform the best. It is, therefore, important that investors don’t try to be too clever. Having too much money in one area that under-performs can have a significant negative effect on your overall finances. You should spread your money across different assets such as equities, fixed interest, commercial property and cash, but make sure this is in the right proportions to meet your objectives and attitude to risk.
Stay calm and relaxed
It is really important to stay calm and rational. Too many people make investment decisions based on short-term performance or sentiment. They often buy at the top of the market when sentiment is positive and sell at the bottom when it is negative. Investors will achieve better long-term returns and ride through the difficult times by staying calm, adopting a long-term strategy and sticking to it without being distracted by all of the short-term noise. If your investment strategy was right for you before this recent bout of market volatility, it is probably still right for you today.
Brave investors may see stock market falls as an opportunity to buy. Despite the economic problems in different parts of the world, many companies continue to perform well, make consistent profits and have large amount of cash on their balance sheets. It is now possible to buy into many of these companies at a lower price, however, you need to understand that markets may fall further before they start to recover.
Investing regular premiums, rather than lump sums, is a sensible way to invest during difficult times and periods of stock market volatility. This approach negates the risk of market timing and means that if investments fall in value, then units are simply bought cheaper next time, bringing down the average purchase cost.
To ensure that you don’t end up taking too much, or too little risk you should look to rebalance regularly. This involves selling some of your investments which have performed well and now represent a larger proportion of your portfolio, and reinvesting into those which have performed poorly and are now a smaller part. This will help to get you back to your starting position.