How to respond to market volatility

Originally published at: How to respond to market volatility – InvestEngine Insights

When we invest in markets, we do it with the understanding that growth isn’t a straight line. There will be periods of growth and there will be periods of turbulence – investors just hope to experience the former more than the latter. 

The fact of the matter, however, is that markets go through rough patches. Geopolitical instability, shocks like Covid-19, even extreme weather events can cause performances to slump and dealing with those downturns is what separates a great investor from the rest. 

So, we’ve compiled a few tips to help you navigate market volatility. A couple of these may seem counterintuitive, but we believe they’re the best way to position yourself to not only withstand any ups and downs but also come out the other side strong. 

TLDR: Investing is a long-term project and reacting to short-term fluctuations can actually have a negative impact on your investments rather than a positive one. Generally, focusing on your broader goals and riding out volatility are a good option for most investors.


Stay the course 

Probably the most common mistake people make when they experience market turbulence is to sell their investments. At first glance this makes sense; why keep your money in assets that are losing value?

The reality is that selling your assets only cements your losses. Those that sell miss out on any recovery that comes after the dip. There’s no guarantee that assets will recover their value, but selling when they’re down only ensures that you make a loss on that investment. 

You might have heard the phrase time in the market beats timing the market and it’s not just a cliche, there’s plenty of evidence to support the idea. We advocate long-term investing, which means avoiding knee-jerk decisions, sticking to the broader investment plan and seeing short term shocks for what they are.


Try little-and-often investing

A lot of people worry about their timing when it comes to investing. They naturally want to avoid buying when prices are too high and avoid buying just before a fall in markets. 

We’ve said before that the best time to invest is almost always ‘now’ – this relates to time being your most valuable asset as an investor – but this comes with a couple of caveats. The most important is that you can avoid any worries about market timing by investing little-and-often to stagger your market entry. 

Put simply, if you put £20 a week into your investments over the course of a year, the individual ups and downs of your assets won’t matter all that much because you’ll have invested into them when they’re up and when they’re down. This is essentially pound cost averaging, but it’s not as complicated as it sounds. 

Timing the market is incredibly difficult to do, and getting your timing wrong can be frustrating. So, why not take away the stress and invest at a pace that suits you.


Consider professional portfolio management

When you’re dealing with your own money, market turbulence can be an emotional stress as well as a financial issue. In a lot of cases, having a professional manage your money can be a real weight off. 

Investment management isn’t just for the very wealthy. At InvestEngine, our Managed portfolios charge just 0.25% a year – just 21p a month per £1,000 – alongside the small ETF costs you’ll pay. Modern technology and the latest investment theory mean that the costs associated with managing client portfolios are lower than they’ve ever been. 

Our experts have seen it all and can take a solely objective view of your long-term finances; their job is the bigger picture. So, if you want to let InvestEngine take the reins so you can put your time to better use, why not check out our Managed portfolios.


Important information

Capital at risk. The value of your portfolio with InvestEngine can go down as well as up and you may get back less than you invest. ETF costs also apply.

This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.

Tax treatment depends on personal circumstances and is subject to change, and past performance is not a reliable indicator of future returns.