Navigating investment markets can sometimes feel nerve-racking, but persisting with an agreed investment strategy during volatile times is often the correct approach.
Most of the market’s significant gains occur on just a few days each year. If you sell during a downturn, you risk missing these crucial moments, which can significantly impact your returns. Staying invested ensures you capture these gains.
Compounding—earning returns on your returns—becomes more powerful the longer you stay invested. In the UK, using tax-efficient accounts like ISAs and pensions enhances this effect. Even through market volatility, your investments have more time to grow.
Volatile markets often offer the chance to buy quality investments or into collective funds at a lower price. By staying invested, you can take advantage of these opportunities, potentially boosting your long-term returns. If you are investing on a regular basis, this is referred to as pound cost averaging.
Selling investments in a panic during market falls is likely to lock in losses. Staying invested helps you maintain discipline and a long-term perspective, avoiding costly emotional decisions. It is worth remembering your starting goal for investing, which often will be based on a longer-term objective, such as providing security in retirement years.
When constructing an investment portfolio, diversifying your investments across different assets and regions helps manage risk. Even if a part of the portfolio falls in value during periods of volatility, others may perform well, balancing out your overall returns.
In conclusion, a well-diversified portfolio mapped across to an agreed level of investment risk which remains invested is likely to deliver a better return than ducking in and out of the market based on often short-term market falls. Conducting regular reviews of your investments and reconsidering the purpose or goals for the investment is equally important.
If you would like to review your financial planning, reconsider your longer-term goals whilst considering the tax efficiency of your investments, then contact the multi-award-winning Wingate Financial Planning team.
