Investment volatility: Responding to market conditions


When your money is invested and you see the value of stocks and shares dipping, it can be tempting to take swift action. However, often the best response is to trust in your long-term financial plan and stick with it.

Following a volatile 2018, you may find that your portfolio isn’t where you’d hope when you review it. Numerous factors, from Brexit to trade wars, influenced the stock market over the last 12 months. These unpredictable influences on investments aren’t going to go away, they’re part of the market.

After taking a hit, wanting to make a knee-jerk decision is normal. However, you need to step back and focus on the long term. Ideally, you should invest with a minimum time frame of five years, giving your investments an opportunity to overcome potential dips in the market. With this in mind, it’s worth looking at how investment markets have performed historically; when you look at the overall long-term trend they have continued to rise. Even after market ‘crashes’, such as during the 2008 financial crisis, they have ultimately recovered.

Following long-term plans

Naturally, investors are worried about the impact of market volatility. In fact, 60% of UK investors said they are concerned about the impact current market conditions will have on their investments, including their pension savings, according to research from Aegon. However, the research also indicated that many recognise the benefits of sticking with their long-term plan:

  • 69% don’t plan to take any action with their investments; 63% haven’t reduced their exposure to equities in the last three months
  • Just 19% are planning to make changes to their portfolio and 14% are reassessing their current investments in order to diversify
  • While many aren’t taking action, there are still concerns, one in five plan to seek financial advice in relation to their investment options in the next year

Nick Dixon, Investment Director at Aegon, said: “We’ve seen a number of risk factors impacting global stock markets, including evidence that US and China economies are slowing, Brexit uncertainty and ongoing trade wars between the US and China. Political and economic uncertainty has understandably created ongoing concerns among investors. However, what is evident is that investors are looking through the current situation to the likely longer-term impacts and good financial advice can help investors avoid any panic decisions.”

What should you do if volatility is a concern?

1. Look at your long-term plan: As mentioned above, investment decisions, should carefully consider your long-term plan. Before making any changes to your current portfolio, you should review your wider financial goals. A strong financial plan will have made provisions for volatility and periods of downturn.

While sticking to your plan is often wise, it’s important to recognise that goals do change. If, for example, your aspirations have changed over the last couple of years, it may be that your current plan no longer reflects this. Take some time to ask if your current financial plan suits you today.

2. Review your other assets: As part of a solid financial plan, your past investment decisions should have considered your other assets too. Taking a look at these and how their value has changed can put your mind at rest. Knowing, for example, that you have savings or other sources of income that you can use should investments take a while to recover can give you greater confidence.

3. Assess your risk profile: There are numerous factors that should influence your risk profile when investing. But an important one is your overall attitude to risk. If you find you’re worried about investments and frequently checking how they’re performing, it could be an indication that reducing exposure to volatility is right for you.

However, this should tie in with your overall financial position. It may be that your current risk profile is correct and taking the time to understand why it’s been selected for you can help ease some of your concerns.

4. Speak to a financial adviser: This is an area a financial adviser can help you with. We’re here to help you understand how investments make up part of your financial plan and the impact downturns can have. Whether you worked with us to build your financial plan or are looking for a professional to review your current asset allocation, please contact us. Our goal is to give you confidence in the financial decisions you make.

Please note: The value of your investments 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. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.