The secret to good investing in turbulent times? Keep calm and carry on

Stay calm and carry on | Murda - stock.adobe.com

Investing and panic have never been a great combination. Changing your investment philosophy overnight usually indicates poor planning.

The return of Donald Trump to the Oval Office and the resulting tariff war have shaken financial markets and there is certainly no shortage of frayed nerves out there. But, for those that manage money professionally, staying calm and collected is a must. There is much to be said for keeping your head when all about you are losing theirs.

Graeme Brock | Supplied

There are some universal principles to effective investing and it is always good to remind ourselves of what they are during volatile times.

The first is understanding the value of long-term thinking. There will always be ups and there will be downs in the markets. This doesn’t mean the fundamentals of what you are invested in change with the prices on the screen. Staying patient and maintaining confidence in the strength of your portfolio is very important.

The second key principle is diversification. Putting all your eggs in one basket is not a great idea. A portfolio with a wide variety of asset classes and risk spread across industries and geographies is better defended against market shocks than one that is narrowly concentrated.Our approach at Waverton encompasses both of these principles. We invest globally and actively on a direct basis. This avoids passive funds and allows control over what assets are included in a portfolio as we make minimal use of third party funds.

We manage assets for individuals, families, charities, financial advisers, and institutional investors, and we always counsel clients to stick to these important fundamentals.

The main asset classes contained within an investment portfolio are vital tools for maintaining these principles, so it is important clients understand what they are and how they work –particularly when markets are rocky.

A typical portfolio will include some variation of bonds, shares, alternatives and cash.

Bonds are a form of debt and provide investors with a steady and predictable income stream through a regular payment known as a coupon. A bond has a clear payment schedule in place throughout its life. While its value can fluctuate, when the bond matures at the end of its life cycle, the holder receives back the a predetermined value of the security.

Shares, often known as equities, represent an ownership share in a company. Profit comes in the form of equities rising in price or companies distributing profits by way of dividend. It is important to remember shares can also fall in price and companies can choose to withhold dividends. Historically, equities have provided the best long-term returns.

Alternatives form a broad heading, covering property, commodities, infrastructure, along with more sophisticated instruments. An allocation to alternatives provides diversification benefits and can help smooth returns, while certain investments can enhance income.

More sophisticated investors may wish to discuss complex funds with their wealth manager.

Cash is a favourite for some investors as it is easily understandable, readily accessible and earns interest. Most investors like to hold a certain amount of cash in the currency they are most exposed to – usually the currency of the country they live in – but may also want to hold cash in other currencies too. Investors should remember that cash can go up and down in value compared with other currencies, and it is also vulnerable to inflation.

Anyone who manages financial assets should always try to communicate the fundamental principles of investing and explain the differences between the most common asset classes. Better understanding means less panic – and panic is best avoided.

The composition of a portfolio can always be tailored to reflect the risk levels a specific client is comfortable with, but the fundamentals of good investing remain the same. The sages of our industry navigated their way through a lot of market panics and paying heed to that experience is usually wise.

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