Volatility has clearly returned to the investment markets in 2019, in part due to the UK’s approach to Brexit and the US-China trade war. While the ups and downs can be disconcerting, volatility can also create attractive opportunities for long-term investors. History shows us that, although equities can certainly be risky in the short term, they remain the best-performing asset class over the long term, providing higher returns than cash or bonds.
When we face a period of market decline, the share prices of top-quality companies tend to drop alongside those of businesses that are suffering genuine difficulties. These instances give shrewd investors an opportunity to purchase high-quality stocks at reduced prices, thereby enhancing their overall portfolio.
Do not try to predict the markets. Even the most experienced investment professionals do not know whether prices have peaked or troughed. Staying invested through the best and worst of times has proven to the best strategy over the history of the markets.
Whilst the market is volatile, it is a good time to review your current portfolio. Two key questions to ask yourself are:
1. ‘Does my investment portfolio reflect my investment goals, personal circumstances and tolerance for risk?’
2. ‘Is my portfolio adequately diversified across different asset classes and geographical areas?’
It is probably time to review your portfolio if you cannot answer ‘yes’ to both these questions. Focus on making sure that your portfolio is on course to achieve your long-term aims whilst riding out the shorter-term instability. When you have a longer-term perspective with your investment portfolio, short-term volatility doesn’t matter nearly as much.
An equity investment is not a short-term investment – ideally, you should only look at an equity investment if you can allow at least five years to develop and grow your portfolio.
During a period of market instability, many investors tend to panic and focus only on the short-term losses, forgetting their original reasons for investing. The best way to avoid this is by putting a financial plan in place at the beginning of your investment journey which clarifies your financial goals and how you will achieve them. You cannot put a value on time spent achieving balance and diversification and securing your long-term objectives.
If you would like advice on your investment portfolio, please contact Mike Wall or Richard Penn.