INSIGHTS BLOG

VOLATILITY IS A PART OF INVESTING – SO IT PAYS TO BE PREPARED

Craigs Investment Partners, 18 April 2019

Volatile and unpredictable price movements are a normal part of investment cycles and it’s good to learn to see them not only as a threat but as an opportunity.

There have been eight times since 1960 when the US share market has fallen by more than 20 per cent. That’s roughly once every seven years, so you need to be prepared to experience a few during your investing journey. It is worth remembering that overall, the US share market has significantly increased in value during this period and the share market has generated higher returns than some other asset classes, for example cash.

Here are some points to keep in mind when navigating through volatile markets.

> Should you be worried about volatile markets?

Your view on the market volatility will depend on your circumstances.

If you’re close to retirement or you expect to access your nest egg over the next few years, then you may be more concerned about losing value. If you are concerned then it is a good idea to reconsider your investments and maybe take some risk out of your portfolio.

If you’re younger or you have a long-term investment plan, you can look at market movements differently.

> Volatility for long-term investors can be your friend.

It is almost impossible to judge the exact time when a market will fall, and so to ‘time the market’, that is to buy shares when prices are at their lowest, is very difficult. The best way to invest is through consistent, regular investments.

Regular contributions allow you to spread your purchases across different prices. When markets fall, like during the last few months of 2018, you get to purchase when prices are low. This can be of most help when you are building your nest egg. If you stop buying during a downturn, you may miss the chance to buy at lower prices.

wood for the trees

> There’s a lot of noise out there - think big picture.

At times when markets fall, like now, it can be difficult to see the wood for the trees.

It pays to be mindful that when analysing your investments over shorter periods, it’s easy to miss the long-term trends. It’s best to look at the big picture and not simply change your investment following a market event.

> Review your investments and be willing to make changes.

Owning a broad range of shares in quality businesses remains a great strategy for wealth creation.

You should review your position regularly to see how it stacks up against your objectives, goals, timeframes and risk profile. Then confirm whether the structure of your portfolio (i.e. split between income and growth assets) is appropriate. Portfolios with more income assets and diversified holdings (i.e. holding a broad range of investments) should be more steady.

We recommend you do an assessment at least once a year, especially if your situation has changed, or change is on the horizon.

It’s important to remember that the investment that is performing the best now is not necessarily the best choice for the future. Markets can be influenced by many factors and these can change over time e.g. technology, the age of our population, government decisions like tax and legislation. Ensure your investments are right for your future, and not the past.

> Have diversity in your investment portfolio.

It’s also important to make sure your money is spread out across a diverse portfolio. If your investments are centred around one industry or country, any one factor that impacts them might unduly impact your whole portfolio. Spreading your risk can help smooth your investment growth.

Check your appetite for risk by completing our online Risk Questionnaire at craigsip.com/risk.

Talk to us about how to understand your risk appetite and get the right balance.

> Stay strong.

History has shown us that a well-diversified portfolio, invested in good quality businesses, is a great approach for the long-term. Keeping focused on the long game and ignoring the short-term noise is difficult, but if you can do it, you could be on the right track.

To discuss further please contact the Client Services Team on 0800 878 278 / [email protected] or your investment adviser.