How should you react to uncertainty in investment markets


When you invest, there’s always an element of risk. The value of your investments can fall and it’s a process that’s influenced by many factors out of your control. In fact, trying to time the markets is next to impossible. So, if the value of your investments drops, what should you do?

The market has experienced volatility recently. If you have an investment portfolio, it’s likely that over the last few months you’ve seen its value fluctuate. It may have been affected by economic and political factors, from Brexit negotiations to trade deals. When the value falls, it can be a concern and you may be wondering what you should be doing in response. With the media often sensationalising market changes it can be even more worrisome.

However, the key thing to do is take a calm approach. Don’t make any knee-jerk reactions. If you decide that you will react to volatility, it should be carefully considered. If you’re worried about how your investments are performing, these six steps may help ease your concerns.

1. Look at historical data

First, it’s important to realise that stock markets rise and fall all the time. A look back at historic data will highlight this. However, when you look at the long-term view, investments typically recover and go on to deliver returns. If you’re worried that the value of your investment portfolio will remain low, the historic patterns can help give you confidence that they will rise in the future. Of course, past performance isn’t a reliable indicator for future performance, but it does give you an indication of how markets respond.

2. Keep calm and carry on

With the historical data in mind, continuing to stay the course is often the best action you can take. Having faith in your long-term financial plan and the steps you took to ensure investments were suitable means you shouldn’t worry too much about how investments are performing in the short term. While values may fall, if you don’t sell at a low point, you haven’t lost any money. On the other hand, choosing to quickly sell your investments means your losses become crystallised, with no chance to benefit from a potential recovery.

3. Reassess your long-term financial plan

You should always make investments with the view of leaving your money invested for the long term. Ideally, you should be investing for a minimum of five years. If a fall in value concerns you, looking at your overall financial plan can help alleviate your worries. If you’re not planning to access your investments for five or ten years, does it matter if the value dips in the short term?

Of course, your financial plan may have included withdrawing your money from investments now. If this is the case, reassessing your plan can help reduce potential losses. Choosing to leave your money invested while the market recovers and use other assets to fund expenses, for example, could be an option to explore.

4. Evaluate your current level of risk

Not everyone is comfortable with the same level of risk. If you find that you’re frequently checking your investment portfolio or worrying about how it’s performing, your appetite for risk and current portfolio may not be balanced. All investments do risk falling in value. However, you don’t have to take a high amount of risk to see your money grow. The less risk you take, the less volatile the value of your investments should be. If you prefer certainty over the potential to yield larger returns, reducing risk exposure may be something you want to consider.

5. Consider taking advantage of the downturn

While a downturn in the market can be daunting, it can also be used as an opportunity. When you look at the historical data, it suggests that investment values will rise again. As a result, it presents an opportunity to purchase more stock at a low point, compounding the potential gains you could make in the future. It’s a strategy that could help you grow your wealth quicker. But it also means taking on more risk and exposure to volatility, as a result, it should only be considered if it’s a step that reflects your long-term financial plan.

6. Speak to a financial adviser

Investment markets can seem complex, particularly when you’re faced with decisions to make. Speaking to a financial adviser can help put the market volatility into perspective with your personal goals in mind. If you’re concerned, it’s a step that can help give you confidence in your investment portfolio, as well as the other steps you’re taking to complement this. If you’d like to discuss your investment portfolio and how it’s been affected by recent volatility, please contact us. We’re here to offer advice and reassurance when you need it.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.