If you invest in the stock market, you will inevitably face volatility. Markets can be unpredictable because of geopolitical tensions, events like the COVID pandemic, global economic shocks or relate to an individual company announcement. As share prices falter or swing wildly it is always helpful to remember that history is littered with stories of market falls and also market recovery. So, what do you do when volatility happens? We share three things to think about during these testing periods:
1 – Review your portfolio. Check if you are still invested as per your financial goals and in line with your appetite for risk. Are your financial priorities still the same? What is important to you – protecting your capital or growing your portfolio?
2 – Check if your portfolio is well diversified. Is it spread across sectors of the economy, regions of the world, or assets? Whatever your choice, ensure you are widely positioned and not overly dependent on one thing.
3 – If you sell or buy an asset during this period, make sure it is for the right reasons. It is best not to panic buy or sell as it could have implications for the returns you get. Stick to a disciplined approach e.g., buying only mispriced quality assets or selling only when circumstances change.
Timing the market is notoriously difficult, so stay focused on the long term. The truth is that individuals who have been very successful at timing the market were probably doing this as a full-time job. If you cannot commit to spending all of your days finding the right price points, it would perhaps be better to stay put, focused on your long-term investment strategy and ignoring the noise. Some great book suggestions to help form your strategy are set out below. The Intelligent Investor by Benjamin Graham to help you develop your strategy and the Little Book of Common Sense Investing by John Bogle describes a good way to build wealth over the long term.
To state the obvious, the market is cyclical; there will be ups and downs. Always buy what you understand and keep it simple. Challenges may present opportunities but keep an eye on your risk appetite. Good luck. Remember that the value of your investments and the income or capital entitlement you may get from them, if any, may go down as well as up and is not guaranteed, and you may not get back the amount originally invested.
This article is not financial or personal advice. We are not financial advisers. The information contained in this article is designed for educational and informational purposes only. It is provided solely to enable you to make your own choices. Always remember that if you choose to invest, the value of your investments can fall or rise, so you could get back less than you invested. So, it is essential to seek advice from a qualified, authorised and registered professional. Note also that past performance is not a reliable indicator of the future performance of any investment.
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