The last couple of years have been challenging for investors. Your portfolio may have experienced volatility due to factors outside of your control. Yet, while market performance often grabs news headlines, the short-term movements of your portfolio shouldn’t be your main focus.
Markets did experience a sharp fall in 2020 (at the start of the pandemic) but the majority recovered over the next 12 months. Even so, volatility characterised the first half of 2022 for many investors. A perfect storm of factors has led to some investments falling in value. The war in Ukraine, post-pandemic inflation, rising interest rates, and soaring energy prices all contributed.
According to Forbes, the FTSE 100 index, which is an index of the largest 100 companies on the London Stock Exchange, has fared well. The modest 3% decline was attributed to stocks in the commodities, energy, and financial sectors making up a large proportion of the index. In contrast, the US S&P 500 stock index fell by more than 20% in the first half of 2022.
The volatility isn’t expected to calm in the coming months. There’s also a risk that economies, including the UK, could face a recession. Seeing the value of your investments fall can be a cause for concern. As a result, it might be tempting to make changes to your portfolio. Yet, you should keep in mind the common saying: “It’s time in the market, not timing the market.”
Think back to last year - how many of the events now affecting the markets did you predict? Trying to time the market is impossible – there are too many factors outside of your control to consider. How quickly the economic and geopolitical circumstances have changed, demonstrates this. For most investors, a long-term plan designed to ride out the ups and downs of the investment market makes more sense. Historically, investments have delivered returns over the long term, but this cannot be guaranteed.
Volatility is part of investing. Frequently checking the performance of your portfolio can tempt you to make changes to it. Instead, try to focus on these three things.
When you start investing, you should do so with a long-term goal in mind.
This might include:
Whatever your goal, it should be at least five years away to allow the peaks and troughs of the market to smooth out. Focusing on your goal can help you stick to your plan when investment values fall in the short term. An investment strategy can give you confidence in reaching your goal, even when markets are experiencing volatility.
Investment advice will help you choose investments that are appropriate for you and put your mind at ease.
Remember, all investments will experience volatility and there is always some risk. Your goals and financial circumstances are two factors to consider when creating your risk profile. It’s a step we can help you with and could ensure you pick investment opportunities that are right for you. You can help to screen out volatility concerns by avoiding investing in companies that don't match your risk profile.
Focus on long-term past performance, not media headlines.
It can be easy to focus on daily or weekly market movements. It’s often the focus of media headlines and it can seem exciting. Yet, it’s also more likely to lead to knee-jerk decisions that may not be right for you. Instead, consider how have investments performed over the last five or 10 years and look at the annual rate of return delivered.
Over a longer period, portfolios should aim to deliver steady returns. Historically, this is what the markets have done, although there is no guarantee. Remember, when market values fall, the loss is only on paper until you sell. So, in most cases it makes more sense to focus on the bigger picture, ignoring short-term movements.
If you’re ready to invest to achieve your long-term goals, please contact us. We’ll help you to:
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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