Investing In Volatile Markets

Reconfirm your investment goals

Establish why you are investing and what you want to achieve – blindly selecting stocks or funds because of a rumour or hot tip can often be disastrous.?Once you have established your motivation for investing you can be more confident about your strategy and stomach short term volatility more easily.?You need to ensure your advisor understands a few key factors:

?? Time horizon

How many years are there before you need to access the proceeds of your investments??I.e. when saving for retirement, you should be comfortable in the knowledge that you have x number of years before you make a withdrawal, and then x number of years more before you spend.

?? Your goals

How much do I need to accumulate to fulfil my goals??When will I retire and how much money will I need to enjoy it?

?? Risk profile

Your advisor will go through your broader situation such as current income, debt, and savings, as well as how you feel about it all.?Understanding your current situation along and future aspirations helps you make smarter decisions on the investment strategy and remove concerns about short term volatility and knee jerk reactions to market movements.

Average into the market

By investing regularly over months, years and even decades, you can generate modest returns in even the most volatile of markets.?Through this time-tested method known as dollar cost averaging, you invest into markets every time you are paid, regardless of how markets are doing.?Over the years your money will buy, on average, on more occasions when the market is low and less when it is high.?Also, this removes the temptation to try to time the market!

Invest for the long term

Focusing on your long-term goals will help to remove the jitters around short-term market fluctuations and focusing on long-term trends will help you to make better investment decisions.?Investing for the long term significantly reduces volatility and markets reward staying invested.

Don’t try to time the market

No one can consistently time the markets, not even the experts. Investors often fixate on the headlines and make decisions based on the fear of loss. This is what often drives investors to sell out of markets after they have already fallen and rarely get back into the market before they bounce back.

Most of the gains in the market occur on just a few trading days, so trying to second guess what will happen next will hurt returns.

?This is not to say you should not do anything!?One popular strategy is to rebalance your portfolio regularly. I.e. if you have agreed a 70/30 split between equity and fixed income with your advisor, then you should automatically rebalance regardless of the market.?You sell what is high and buy what is low.

Diversification

By investing broadly across a variety of asset classes, you will reduce volatility. A portfolio will be typically be invested in bonds and equity, this can be expanded to include short term strategies, real estate and esoteric strategies. Then, to help offset risk even more, diversify within each asset class – emerging vs developed markets, long vs short duration bonds, and the credit risk of bonds for example. Be mindful, diversification doesn’t guarantee a gain, likewise it doesn’t ensure you won’t lose. However, given the randomness of returns it also ensures you are not over invested in the worst performing markets or underinvested in the best.