History shows the longer money is invested, the greater the chances of a positive outcome. Staying fully invested through a market cycle has, in the past, ensured investors reap greater rewards over the long-term as rebounds after large losses are often significant.
If you are concerned about recent market falls, it is a good idea to discuss your current investment strategy, rather than making a sudden decision.
Markets will always experience highs and lows in response to social, political and economic events. Timing the markets involves trying to anticipate when these highs and lows will occur, with investors hoping to buy when prices have reached the bottom and sell when they have peaked. Unfortunately, it’s very hard to predict when to buy back in and getting it wrong means you could end up locking in losses and missing out on future gains.
Periods of extreme market volatility heighten feelings of concern in relation to investments, but staying the course and following the five key investment principles below may help you increase your chances of a positive outcome.
- Volatility is part of investing – markets rise and fall regularly, it is part of the natural cycle of investing. But historically, each significant market downturn has been followed by an eventual upswing.
- Keeping money in cash is not the long-term answer – while markets have recovered somewhat from their lows, they are still in a period of significant volatility and further market falls are still possible. However, monetary and fiscal measures have emerged and there are a range of other potential responses available.
- Over the long-term, holding money in riskier assets is rewarded – short-term market movements are often the result of changes in valuation and sentiment – how investors feel about the stock market, in contrast to long-term market movements, which are the result of changes to companies’ fundamental worth.
- Diversify – the basic tenet of investing is diversification which means spreading risk by mixing a range of asset classes within your portfolio. A well-diversified portfolio helps smooth the return over the long run. While there is no such thing as a 100% risk-free investment, diversification can mitigate the inherent risk of investing, helping you to reach your long-term financial goals.
- The greatest asset an investor can have is patience and regular reviews will ensure you are on track to achieve your long-term, strategic financial goals.