Navigating Market Volatility

Sticking to the fundamentals in volatile markets

While it can be challenging to stay the course when markets volatile – or worse still, are tumbling – that’s when it’s more important than ever to stick to good principals of investing.

Have a plan

It’s important to have a plan based on your goals and ensure you are being realistic about what you are trying to achieve. Not only should your goals be attainable, they should also be measurable so you can track your progress against your objectives.

 Take your risk tolerance into account

You need to be able to sleep at night when it comes to your investment approach so it’s important to ensure your approach is in synch with your tolerance for risk. Your risk tolerance is not something that is set in stone, it can change as your circumstances change and needs to be reviewed regularly – not just when markets are on the move!

 Diversification

There’s no avoiding market risk, but it does need to be managed if you want to build enough wealth to live comfortably in retirement and achieve other life goals along the way.

The best way to reduce the risk of one bad investment or a downturn in one market decimating your returns is to hold a mix of investments. This is what is referred to as diversification or, as Grandma might say, not putting all your eggs in one basket.

To smooth your returns from year to year and avoid the risks of short-term market volatility, you need a mix of investments from different asset classes.

 Look to the long term

And finally, it’s important not to obsess over short term market movements and look to the long term. Or if you have a shorter time horizon for your goals, you’ll need to adjust your approach and perhaps consider being a little more conservative. Generally, the longer the time frame for your investment goals the more aggressive (or riskier) approach can be taken.

 Standing the test of time

There is no telling what the best performing investments will be in the next 12 months, as past performance is not an indicator of future performance. What we can be confident about is that a portfolio put together on the basis of sound investing fundamentals and containing a mix of investments across and within asset classes should stand the test of time.

Talk to your adviser

Professional advisers take into account your personal position and make sure your investments are still suitable to your own goals and objectives. They are also skilled at helping you deal with the emotional roller coaster of the investment markets and when necessary, make any important changes if required.