Hold nerve in investments despite market noise

Wendy Morrison | Ross Johnston/Newsline media

Q I’m worried about my investment portfolio given recent headlines and volatility – is there anything I should do?

A When the noise of financial markets rings loudly, it’s natural to ask yourself this question. History shows that investors who keep a cool head in periods of volatility achieve better outcomes long-term, though this is easier said than done. This isn’t because those investors don’t hear the market noise, or their portfolios don’t feel the hit – it’s because they are prepared and, in the eye of the storm, they hold their nerve and stick to the plan.

Although it might take time, markets recover. It’s important to remember that market uncertainty and movement are an inevitable part of investing over the long term. Time in the market is far more important and impactful than timing the market.

It is notoriously difficult to time the market even in the smoothest waters, and the stakes are higher in periods of volatility. It can be tempting to take quick action in an attempt to regain control. Simply “doing” can feel better than not, regardless of the implications.

But being reactive could result in a “wrong” decision – which is only easy to determine with hindsight – and could have a real impact on your ability to achieve your long-term objectives.

In this climate, knee-jerk reactions are more akin to gambling than investing. In periods of uncertainty, it is important to remind yourself why you are invested and what you want to achieve. You want to see your money grow but, when you really drill down, what for? For example, do you want to relieve some financial pressure in the future, improve your quality of life, or support your family? Does this period of temporary uncertainty really impact your ability to achieve those objectives?

For most long-term investors, the answer is no.

The best approach will look different for everyone, there is no silver bullet. You might benefit from setting more cash aside as an emergency fund or diversifying your portfolio. Nothing will make your investments immune to future volatility, but you can protect your ability to achieve long-term goals.

And when the next period of volatility comes, remember the last. Recall how you felt at the time, reflect briefly on your past decision making – did you stick to the plan? – and remember the recovery.

Financial planning should provide you with calm before, during, and after the storm. Designing your portfolio to suit you can lift weight off your shoulders and help you remain focused on your goals.Acumen Financial Planning Ltd is authorised and regulated by the FCA. The information in this text is correct at the time of publishing and should not be regarded as advice.

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