Volatility and trying to ‘time’ the market

In October 2018 we witnessed the return of volatility in investment markets. The previous ten years had provided steady returns, known as a bull market, since the financial crash of 2008. Some investment professionals are expecting another market correction (where prices fall at least 10%), but whilst nobody can truly predict the future, further volatility is anticipated. Thanks to, in part, the current political and economic uncertainty.

Don’t make rash decisions

Try not to panic. During times of volatility there is often a wave of negative, sensationalist press. Tabloid headlines are designed to sell newspapers and advertising space, not truly inform you. The amount of information available online is incredible but remember it’s often unregulated or may have an ulterior agenda behind it. ‘Fake news’ was Collins Dictionary’s official Word of the Year for 2017. If you’d like any information or reassurance, we’re only a phone call away.

Significantly, you only crystallise a loss by selling the investment. Then it’s ‘real’. Try not to obsess about what is ultimately a temporary situation, worry doesn’t achieve anything. You should be regularly reviewing your investments and portfolio, but don’t religiously check it daily. That could cloud your judgement and lead to a hasty decision you might just regret.

Avoid the short-term noise; patience and discipline can pay dividends. In some cases, literally!

Time in the market

The saying has been around for a few years now; ‘time in the market not timing the market’ and it remains relevant today. Volatility or a downturn is impossible to predict with any accuracy. How do you know the market has reached the ‘bottom’ and it’s time to invest? You could spend a lot of time out of the market completely and when you do buy-in there’s no guarantee it’s the right time.

Warren Buffett, famous investor, speaker and philanthropist once explained that market predictions can distract investors from making good stock purchases. “I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good”.

Whilst cash can make up an important part of a risk aligned portfolio, holding a significant amount for an extended period poses its own risk; that of inflation. Its buying power will be eroded over time as interest rates remain low.

Always remember your original savings goal, often this will be a long-term objective, such as towards retirement. You may need to rebalance your portfolio to realign it with your attitude to risk, but remaining invested is often key.

Embrace volatility

Buffett also explained that the worst environment for a long-term investor is a surging market. “The best thing that can happen from [our] standpoint… over time is to have markets that go down a tremendous amount. We are going to be buyers of things over time. And if you’re going to be buyers of groceries over time, you like grocery prices to go down.”

Effectively then, during a downturn in the market, investment units are cheaper to purchase. Your regular pension or savings contribution will be buying a greater number of units than when your portfolio was doing especially well. Over the long term, future gains and compound growth might really reward you.

Here to help

At BlueSky we’ve been providing independent financial planning for over two decades. During that time, we have dealt with volatility, corrections and of course ‘the’ crash. Our team of Chartered financial planners has all the experience, knowledge and qualifications to help guide you to financial security. If you’d like to discuss the performance of your current portfolio or perhaps start building savings for later life, we’re here to help.