Global stock markets have been on something of a bumpy ride of late, as uncertainty spreads across major economies – leading to big swings in share prices.
And while market dips can be unsettling, understanding the broader picture can help you stay grounded during these unpredictable times.
Will Hobbs, Head of Multi-Asset Wealth at Barclays UK Wealth Management, said “Worries about the direction of US policy and its knock-on effects are rattling investors around the world at the moment.
The US economy continues to have a lot going for it, with consumers and businesses still financially healthy in aggregate. However, the manufactured uncertainty coming from the Oval office will chill hiring and investment decisions.
Investors may want to take a broader perspective, remembering that we are likely in the meat of the next industrial revolution, traditionally times when it has paid to take the longer view.”
What should investors do?
As an investor you must learn to live with the fact markets don’t move in a straight line – and that you’re exposed to things that can’t be predicted.
When it comes to share prices, volatility and short-term losses are inevitable - and part and parcel of investing. There are steps you can take to make sure that your investments can handle during difficult market conditions.
Here are some simple strategies you can adopt to tackle uncertainty:
Stay calm and carry on…
There are undeniable challenges on the horizon for investors with a challenging outlook for the global economy. Brace for volatility, but don’t bail out. Staying invested over the long term, even when are short-term bumps, is what sets you up for a greater chance of success. And if you sell investments as a knee-jerk reaction to a sharp fall you could miss the recovery. For example, those who cashed in their investments at the height of the global financial crisis in 2008 would have missed-out on the substantial gains markets made during the subsequent years of recovery.
Get the right balance
Diversification is key to creating robust long-term investment returns. That’s because a well-diversified, balanced investment portfolio is usually the best strategy for long-term investing. Such an approach can limit the impact of unexpected risks and reduce the volatility of portfolio returns.Regular listeners to our weekly Word on the Street podcast will have heard these strategies before.
Ignore panic-stricken headlines
While our financial goals may be long-term, it’s easy to fall into the trap of worrying when share prices move sharply. The Smart Investor app is a handy tool to keep track of your investments and how they’re performing. But you won’t do yourself any favours checking your portfolio valuation daily as it could lead to you becoming overly conservative, should you feel unnerved by the ups and downs.
Remember that typically, the longer you are prepared to stay invested in the stock market, the greater the chance of positive returns. Experts are typically unanimous that investors should ignore the short-term noise and focus on long term goals.
Look back in time
No one can say for certain what the markets will do in the future – it’s not possible to predict. But historically, markets always recover from periods of trauma.
Opportunity knocks
You can benefit from the highs and lows of share prices as a regular investor. By drip-feeding money into the market on a monthly basis, you end up buying more shares when prices fall and the value of those stocks will rise along with the share price. The reverse is true, however, so you’ll pay a higher price when share prices rise.
The over-riding message in times of stress is - get invested, stay invested and stick to your plan.
