Investors have been under increasing pressure over the past few years due to unpredictable markets, which can drain their most valuable asset… brain power.
It’s important to remember that periods of increased volatility are often looked back on as short-term occurrences when viewed through the lens of a multi-decade investment plan.
However, we understand that it can be challenging to watch the value of your investments move up and down during these times and you may feel tempted to withdraw money from your investments or adjust your portfolio.
While doing so could temporarily relieve some stress, the long-term financial impact could be significant. While market performance often dominates news headlines and your attention, keep in mind that your asset allocation has been structured to be consistent with your specific circumstances and built to withstand periods of volatility.
Emotions can influence your decision-making, so here are our tips to help you stay calm when investing.
1. Focus on your long-term goals.
When you invest, you should do so with a medium to long-term goal, such as retirement.
Focusing on your goals can prevent current events from diverting your attention or causing you to deviate from your plan. A clear investment strategy can give you confidence in reaching your goals, despite markets experiencing volatility and allow for any highs and lows of the market to smooth out.
It’s wise to take a step back and consider the reasons why you initially began your investment journey before you make any decisions. Long-term investors have been generally rewarded for their patience, discipline, and persistence.
Remember that the secret to long-term investing is time in the market, not timing the market.
2. Learn from history.
From wars and pandemics to global recessions, the world has seen many major shocks. Whilst you cannot use past performance as a guide to predicting future performance, history has demonstrated that markets often rebound from downturns and go on to deliver long-term gains regardless of the difficulties the global economy has encountered.
Consider how your investments have done over the long term: what has been the delivered annual rate of return? And what about the past 5 or 10 years’ performance of investments?
Louisa Nicola, a neurophysiologist who works with investors and athletes to help them achieve optimal performance, emphasises the significance of separating fact from fiction, the importance of looking and the bigger picture and putting your confidence in the managers looking after your investments.
3. Investing can potentially outperform cash over the long-term.
In volatile markets, investors will often consider moving to cash. While this may be appropriate for some people in certain circumstances, it could be that being in cash means you could miss out on potential growth in investments. Over long periods, investments have historically outperformed cash. It’s essential to remember that time in the markets creates the chance for investment value increase.
When considering your short-term objectives, cash may be preferable to investing. However, for longer-term financial goals, such as retirement planning, inflation can erode the buying power of cash over time. If you are able to invest your money for a minimum term of 5 years or more, your money has the chance of growing and exceeding inflation over the long run.
4. Limit yourself.
Your financial and emotional welfare will generally benefit from limiting how often you monitor your portfolio.
We take pride in providing you with technology that lets you see every aspect of your financial life in real-time. That makes checking your investments as simple as clicking a few buttons. With that in mind, there are plenty of reasons why you could limit how often you check your portfolio.
While you might believe that frequently reviewing your portfolio is a good habit, this can put pressure on your long-term goals. You could react to a sudden downturn and wind-up crystallising losses that you could have recovered over time.
In these uncertain times, Louisa highlighted that you could take small steps to adjust your behaviour to avoid shocking your brain, which might increase stress. Instead, you should focus on incorporating better habits and find a routine that works for you.
5. Stay diversified.
The goal of diversification is to lower the volatility of your portfolio and is key to managing risk. By remaining in a diversified portfolio, you can potentially reduce losses by distributing your funds throughout various asset types, such as equities, cash, and bonds.
Each asset class may perform differently in a range of market conditions; some will lose value, while others will make gains.
Talk to a professional.
Don’t be afraid to discuss any concerns you may have with your financial adviser if you are worried about market volatility. They can review your financial plan with you, offer you expert advice, and assist you in deciding what actions you might need to take to reach your financial goals.
If you would like to speak with a financial adviser, please contact us today.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. This blog is not a personal recommendation or financial advice.
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