Jeff Lewis, director at Edinburgh IFA RobMac, summarises four ways to manage market volatility in these uncertain times. Jeff says “This is a devastating time for individuals, families and communities across the world and there will be economic and market implications. But unlike the great financial crisis in 2008/2009, the underlying position of financial markets is solid, and analysts suggest that it should bounce back much more quickly than before.
That said there are some ways that we can all help in making that happen.”
1. Keep calm and don’t over-react
Market downturns create opportunities for Fund managers to reshape their portfolios by perhaps taking a larger stake ‘in companies they really like but have been quite expensive in the recent past. Some Fund managers that back long term winners are reviewing their holdings to ensure they will not only survive this downturn but will be in a better position to become stronger as some will not survive as we have recently seen in the retail sector.
2. Missed opportunities can be very costly – do not try and time the market
Generally, a steep fall in investment markets are followed by a significant bounce back therefore crystallising your losses now in the hope of timing when the bottom of the market arrives and then reinvesting is an impossible task. As an experienced fund manager once said to me “I’d need to have a crystal ball and the batteries to power it in order to make that call”.
The bottom of the market may be a fleeting moment with the upside return happening before you realise it.
3. Staying invested is the key to successful investing
As a leading Fund manager’s mantra says, “It’s time in not timing that gives the highest return” or in other words “you’ll never get it right so best just to be in it and hold on.”
So the longer your investment horizon the less you will be impacted by downturns as you will remain invested and perhaps the profits you have made over the years will protect you from the full impact of a fall in valuations.
Some analysis has been done on a major equity market whereby an investor missed the best 20 days of investing in a 10 year period with their average return reducing from 7.6% pa to 1.3%, it does illustrate the need to remain patient and resilient and investors will be rewarded with greater growth in their portfolios.
4. Diversify to achieve a smoother ride
By using different assets classes it’s possible to reduce the downside impact as not all assets will react the same way in a volatile market. Fund managers will now be positioning their portfolios to take advantage of what asset classes will bounce back quickest whilst being careful to not increase the overall risk. Diversifying assets reduces risk whilst giving the investor a smoother ride that we all wish to achieve.
Jeff concluded that “We are here to help our clients with the above strategies. Every individual has different requirements and we can advise on the most suitable plan to meet their needs. With all the uncertainty, we believe it’s important to talk to your trusted adviser”.
If any of the above is of interest to you and you would like to discuss your financial position further, you can arrange to meet online with one of our financial advisers by scheduling an online meeting here>>
