Pitfalls when investing in a volatile market
Global uncertainty is already a defining feature of 2022, and this is reflected in households’ confidence in their finances.
Just 10% of people believe the economy will improve over the next 12 months, while 74% expect things to get worse, according to recent research from Which? (which.co.uk).
Many of those with investments will have seen the impact on their savings pots in recent months, but remember that investments are generally intended as a longer-term way to build up money, and there will be peaks and troughs in the markets over time.
Maike Currie, investment director at Fidelity
International (fidelity.co.uk), says: “It can be difficult to look to the longer-term right now, but this is how you need to think about any investments you have. It may sound counterintuitive, but staying invested through volatile times can often be the best approach.
“Trying to time the market leaves you at the risk of missing any market corrections, while also posing the impossible question of when is best to buy back in.”
Maike also says there is an important distinction between the risk someone may be taking on and volatility. She says volatility reflects “the movement of a price,” while risk is “the measure of how likely your investment will deliver a permanent or long-lasting loss of real value”.
“Right now, your investments, regardless of the risk profile, are likely to experience some shifts in value due to uncertainty in the market,” she adds.
Another pitfall could be keeping too much money in one type of investment. Maike says: “Different assets are likely to perform differently when the market is up and down.
“Diversification is an important part of any investment strategy at any time, but even more so now.”
A mix of assets across different sectors and geographies will keep a portfolio ‘volatility proofed’ and balanced.
Drip-feeding money into investments regularly over time could also help smooth out the impacts of market volatility.