Until such time as an investment proposition is created that has all the potential performance of stock market related funds but with the downside risk of a Building Society account, we have to accept that fluctuating stock markets are part and parcel of medium to long-term investing. Whilst market downside volatility creates unease, it is just as important to remember why you are investing in the first place, as well as what you are invested in.
At EBS we advocate a Multi Asset risk rated portfolio approach, to give you the highest likelihood of meeting your goals. Our aim is to provide a proposition that offers maximum growth prospects, relative to your ‘risk profile’, whilst taking the least amount of risk possible (our risk adjusted returns philosophy).
However, it’s worth highlighting two key factors to remember when investing.
Firstly, it’s crucial to have a well-diversified and broad portfolio of investments, across all asset classes and sectors. Different assets or regions will always perform differently and can often vary significantly year on year. Diversification reduces investment risk so that you are not overly exposed to the fortunes of one asset class, sector or region. This is also linked in with the level of risk that you are prepared to take in the first place, relative to your personal circumstances and attitude to investment risk v reward.
Secondly, successful investors are marathon runners, not sprinters. When you see lots of ‘bad news’ and markets are falling, it can be tempting to panic and sell your investments, moving them to cash. However, this will very rarely help you meet your financial goals. Investments move up and down all the time – it’s what they do.
Attempting to ‘call’ the market is next to impossible and, if you move to cash to avoid losses, how will you know when to reinvest? This is also next to impossible to get right and you run the risk of missing out on the upside returns. Markets can reverse downward trends very quickly and unexpectedly.
In our experience, investing through a robust investment strategy, with an eye on your medium/long term objectives, and having the discipline to stay invested even when it might feel uncomfortable to do so, will always create the best chance of success.
Time in the market, rather than timing the market, invariably results in better outcomes. We firmly believe that you are better off being ‘in the market’ than out of it. It’s all about taking the medium/longer term view whilst avoiding the temptation to make ‘knee-jerk’ reactions to short term ‘noise’.
Market volatility is simply part of the investment process and is often the investor’s friend. Downward market movements provide fund managers with more buying opportunities whilst, for individual investors, it’s much better to be making new investments when markets are low, rather than high.
So, our advice, as always, is to focus on your original investment objectives, invest via a broad and diverse Multi Asset proposition and take the medium/longer term view whilst ignoring short term fuss.