Investing in Volatile Markets

In these uncertain times, we explore the long-term strategies that will help investors weather the storm…

The global economic uncertainty fuelled by the sovereign debt crisis has resulted in volatility across all markets. Maintaining perspective is a real challenge when media coverage is dominated by noise of trading and concepts like ‘risk on, risk off’. While few specialist traders may be able to capitalise on this uncertainty, for most investors it has been hard to keep on top of the rise and fall.

Markets have struggled before and no doubt they will do so again. Times were tough in the early 80’s when there was a jump in oil prices, inflation climbed to double digits and investors considered equities dead. Likewise in the 70’s, however asset classes across the globe recovered from these difficult periods.

Market uncertainty is likely to continue for quite some time, the truth is that no-one can predict market behaviour. It is therefore essential to develop a long-term strategy based on your investment objectives and risk profile.

During turbulent times, it can be tempting to avoid risk altogether or pull out of an investment as a reflex reaction to a drop in price but this will often result in selling low. Markets can rebound sharply, therefore the opportunity cost of being out of the market could be significant. Moreover, every time you change your portfolio you are incurring costs which impacts returns that could be avoided by sticking to a predetermined plan. In fact, market downturns can be a good time to invest more monies into the market.

This year can be a good time to take stock of your portfolio and consider the possible steps you could take to secure your investments for the unforeseen. One of your ‘New Year’s Resolutions’ could be to pay less attention to the day-to-day market developments.

As the history of financial markets has taught us, the future can and will be on many occasions uncertain. The best way to invest in an uncertain future is to build a diversified mix of higher and lower risk investments, which reflect your time span, needs and tolerance for risk. Over the long-term a good strategy should ensure that a positive return is achieved. Successful investing requires patience, perspective and the discipline to keep emotions at bay.

With the right portfolio you should not have to panic every time you see the financial news, but you should review your portfolio on a regular basis, to make sure you are on track to meet your objectives. If you think your current portfolio is too complex, doesn’t address your individual needs or is too high-risk, then make 2012 the year to review your investments.

Buzzacott Financial Planning provides a low-cost, bespoke and risk-sensitive approach to wealth management. By using a combination of index-tracker, exchange traded funds and some active funds, we can help you build a portfolio that meets your needs and objectives.