This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult an independent financial adviser.
It’s easy to be affected by the negativity in the media headlines about the general state of the market. This can be a difficult atmosphere for an investor to navigate, with many becoming disillusioned and pessimistic about the prospects for their portfolio. However, it’s important to recognise that the interests of investors and the wider media are not necessarily aligned.
The media generally thrive on stories about shock, decline and doom; after all, these headlines help to sell newspapers. Yet the short-term negativity of a headline might not reflect the wider, more positive movements or trends of the markets. Take the 2016 EU referendum campaign and result as an example.
The FTSE 100 experienced a lot of volatility in the days leading up to the vote on the 23rd of June. During this time frame, the index fell by nearly 400 places to 5,900. The index climbed up again in the wake of polling which suggested Remain might prevail in the vote. Once the result was announced, however, that the UK had voted to leave the EU the FTSE 100 plummeted to below 6,000 again. Yet in the following weeks, the FTSE 100 was up even higher than the 6,300 before the referendum. During this whole time, the media headlines had a field day by publishing headlines of imminent market disaster. People would have been forgiven for believing them. Yet the wider, long term trend of the FTSE 100 throughout this period (and since) has generally been an upward trajectory – despite the short term falls.
Even apart from media hysteria inflaming investor panic, however, it can be difficult to know how to sensibly navigate market volatility. What should you do, after all, when you start to see one of your investments dive and everyone else seems to be jumping out? How can you be sure this is just a short-term dip followed by a rise, and not another Neil Woodford disaster?
In this short guide, our financial advisers here at Cedar House will be offering some insights to help inform your thinking. If you’d like to take a further step and consult a member of our team about your portfolio, then you can arrange a free financial consultation via 020 8366 4400 or enquiries@cedarhfs.co.uk.
#1 Remember to strap in
Whilst there has been some market volatility in 2019 and certainly a lot of political upheaval, it would be fair to say that, historically speaking, recent years have shown comparatively low volatility. This “recency bias” in human psychology leads many of us to assume that this relative calm is how things naturally are. So, when the markets start to get “bumpy”, it’s easier to panic. Remember that markets are, by nature, usually quite volatile. It’s the nature of the beast. When you started an investment portfolio with your financial adviser, remember that you were not signing up to a regular savings account with your bank. You were committing to a long-term wealth growth strategy, which would involve ups-and-downs along the way.
#2 Remember the foolishness of market timing
Almost no human being on the planet can accurately and consistently predict what will happen in the markets. Even world-famous investors such as Warren Buffet advise most people to not try to “time the markets”. Think again of the FTSE 100 example above, leading up to and after the 2016 EU referendum. It was tempting for many people to take their money out of the market during this volatile period, and certainly many did. However, those who tried to time the market in this way likely lost out in the longer term.
Remember, again, that volatility is not only the nature of the investment beast, but also trying to predict this volatility is a bit like trying to predict your spouse’s mood tomorrow morning. You can make a good guess, but you cannot be certain what direction things might go!
#3 Keep emotions in check
It can be very tempting to panic and make impulsive investment decisions when you suddenly see your stocks take a dive, or when you watch a “hot stock” soar upwards. Remember, however, that emotional reactions to market events are normal, but basing your decisions on your feelings can be one of the most disastrous things you can do.
Try to take stock, breathe and run through a rational list of questions when you find your emotions pulling you towards a particular investment decision. Here are some examples:
- Is your investment money needed urgently? Will you even need to access it in 10 years?
- What’s happening in the worldwide economy? Is it shrinking, or is global outlook good?
- Generally speaking, is it a good idea to sell off your equities if they are going down in value? What if they climb back up again?
- In 5-10 years, will the market be in the state it’s currently in? Is it likely to improve?
- Are you smarter than John Maynard Keynes (20th Century world-famous economist) or Isaac Newton? They tried to time the markets, and both failed.
Final Thoughts
Navigating market volatility can be emotionally-challenging even for very experienced investors. One of the great benefits of working with a financial adviser is that they can help you to check your emotions during difficult periods, acting as an impartial “sounding board” and guide. Quite often, simply speaking out your concerns to an adviser can reduce their potency.
If you would like to discuss your financial plan or investment portfolio with a member of our financial adviser team, then get in touch today to arrange a free, no-commitment consultation:
020 8366 4400 or enquiries@cedarhfs.co.uk.