Four secrets to successful investing when markets are volatile
Written by Adam Kemp on May 31, 2016.
Have you been wondering what to do with your investments in the current landscape of volatility and wildly fluctuating prices? You certainly aren’t the only one - the ups and downs of the market over the last few months have tested even the most experienced of investors, with many wondering if now could be the time to get out.
The problem with trying to time the markets is that it is almost impossible to find the exact right time to do it, not to mention the exact right time to reinvest if you ever want back in. While as investors we all aim to buy low and sell high, those spooked by nose diving share prices end up doing the exact opposite. They then decide to reinvest once prices are moving in the right direction again, thereby missing the boat twice. The fact is that markets always move in cycles so while these short term ups and downs may seem catastrophic right now, in ten years’ time they will simply look like a blip on an upwards graph.
To my mind there are four factors to bear in mind for successful investing, not just in the current market conditions but in all market conditions:
1. Consistent, disciplined saving
The most important thing about investing to fulfil your future financial goals (and retirement savings feature highly for most people) is to start and then to keep investing on a regular basis. Even if you can’t afford a huge amount to begin with, get into the habit of putting some money aside every month. After a short time the habit is set and you can increase the amount you invest when you can afford to do so. Reinvesting any dividends you receive will boost your pot even further.
2. Time horizon
Plan on keeping your money invested for the long haul. Most experts agree that while negative returns are possible, and even likely when investing in the short term, over time the likelihood diminishes to almost zero. Stocks have more good years than bad so even in troublesome times like those we are living through now, the long term outlook is positive. If you don’t believe me, here’s what investment guru, Warren Buffet, has to say on the matter: ‘Over the long term, the stock market news will be good. In the 20th century, the US endured two world wars and other traumatic and expensive military conflicts … Yet the Dow rose from 66 to 11,497.’
A diversified portfolio is absolutely key to successful investing – that means investing in different asset classes, different industrial sectors and global markets. That might sound like hard work but there are off-the-shelf products that do this for you. If you’d like to know more, you can always contact me to discuss the range of investment options we can offer through our partnership with award-winning investment manager, Tilney Bestinvest.
4. Frequency in your investment strategy
In a long term investment strategy, high volatility can actually work to your advantage. The key is to invest a regular amount at regular intervals. At times when prices are lower, you are benefitting by being able to acquire more units for than when the price is higher. The more units you have when the plan reaches full term the higher you ultimate gain.
An important part of this strategy is that in the last years of the plan, to gradually shift the asset allocation away from more volatile equity funds into less risky asset classes and ensure that cash values are available as planned.
If you follow the four principles above you can stop fretting about the short term ups and downs of the market, stick to reviewing your portfolio on a quarterly basis and sit back and watch your money grow over the long term. If you need help with any of this, a professional financial adviser (like me!) can provide guidance.