Investment risk and volatility – how to keep your cool
With interest rates currently at very low levels, and inflation starting to climb, savers aren’t seeing great returns. So, many are considering putting their money into the stock market.
However, adjusting to a world where stock prices can rise and fall, often by a wide margin on just one day, can take a bit of getting used to, and volatile markets can feel like an unsettling roller-coaster ride. So, what is the key to managing your investment portfolio during turbulent times?
KEEP A CLEAR HEAD
Firstly, as Rudyard Kipling wrote, it’s important “to keep your head when all about you are losing theirs.” Investment requires a disciplined approach, and a degree of holding your nerve if markets drop. Investment professionals know that markets can be volatile and will inevitably go down as well as up from time to time. They know the worst investment strategy you can adopt is to jump in and out of the stock market, panic when prices fall and sell investments at the bottom of the market.
HAVE A PLAN IN PLACE
So, instead of being worried by volatility, the best strategy is to be prepared and speak to an adviser. A well-defined investment plan, tailored to your goals, that takes into account your financial situation, your income requirements and your capital needs can help you weather short-term fluctuations in markets. Market volatility is also a timely reminder to keep your investments under regular review, so that you can help ensure that you have the right exposure and weighting to different stocks in a variety of markets – UK and global. Your risk profile should be visited on a regular basis with your adviser. Much depends on your investment time horizon. Younger investors may be happy to invest in assets with a higher potential for growth, but those closer to or in retirement may want to opt for a more conservative approach that offers less risk and reduced volatility.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.