One of the most frequent reasons our investment clients get in touch is around times of market volatility. It can feel overwhelming for both seasoned investors and those just starting out when there are market fluctuations. The main thing we always say is that volatility is part of the investment journey. Turbulence in the short term often brings opportunity and can strengthen long-term portfolios.
Here are our five key considerations to guide you through volatile markets:
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Maintain a Long-Term Perspective
Maintaining a long-term perspective when investing helps you stay focused on your financial goals despite short-term market fluctuations. It encourages disciplined decision-making and reduces the urge to react emotionally to volatility. Over time, this approach can lead to more consistent and potentially higher returns through the power of compounding and market growth.
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Diversify Across Asset Classes
Diversifying across asset classes, such as stocks, bonds, and property, helps reduce risk by spreading investments across several types of assets. Each asset class reacts differently to economic events, which can balance performance during market ups and downs. This strategy enhances the potential for more stable and resilient long-term returns.
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Identify Your Risk Tolerance and Time Horizons
Identifying your risk tolerance and time horizon is essential for choosing investments that align with your financial goals and comfort level. Risk tolerance reflects how much market volatility you can handle, while time horizon determines how long you can keep your money invested. Together, they guide your investment strategy to match both your needs and your ability to stay invested through market changes. All funds are risk rated so that you can select an option that best suits your profile.
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Rebalance with Discipline not Emotion
It’s easy to fall into what’s called “emotional investing” behaviour. But rebalancing should be done with discipline, not emotion. This will help keep your investment portfolio aligned with your original goals and risk level. Emotional decisions can lead to buying high and selling low, hurting long-term returns. Regular, rules-based rebalancing ensures you stay on track regardless of market noise.
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Use Tactical Tools and Insurance
Volatility does not need to be viewed as a negative. It can also be an opportunity. Investing consistently over time smooths the highs and lows. This approach is referring to as “pound-cost averaging”. You can also include protected capital options in your portfolio which will limit the downside when sharp drops occur. Using different strategies when building your portfolio will effectively ensure that it delivers what you expect it to, when you expect it to.
NEXT STEPS
The most important thing to remember is not to panic when there is a downturn in the markets. It is all part of the investment journey, and a robust portfolio will already be set up to make allowances for this activity. Don’t make decisions in haste or under stress or indeed react emotionally to market changes. This may well damage the longer-term value of your investment.
Instead, use times of market volatility as an opportunity to review your portfolio, reassess your final plan and reaffirm your tolerance for risk. And remember that’s where we come in.
At Life Goals, we work with you to turn your financial plans into a rewarding, comfortable reality. Financial planning isn’t about products. It’s about you and working with you to create and maintain your financial plans, making sure everything works together to meet your needs and goals. Just get in touch if you’re ready to connect!