Anyone investing in the stock markets currently might be struggling with some shut-eye. With inflation the highest in 40 years, central banks have sprung into (slightly delayed) action and are hiking interest rates. This has raised the prospect of an economic recession, which is glum news for corporate profits and stock markets. We speak to AJ Bell’s head of investment research, Ryan Hughes, to get his top tips on dealing with market volatility.
Seeing our investments languishing in the red can’t be anxiety-inducing. Whilst this is perfectly normal over the course of a market cycle, it can lead to panic and predictably poor investment decisions.
Ryan Hughes explains: “The reality is that many investors, regardless of experience, make similar mistakes, particularly in times of volatility, which can do serious long-term damage to your wealth. It means, by teaching yourself some simple rules about managing your investments, you can look to reduce the impact of those mistakes and make the navigation of uncertainty a much less stressful experience.”
Ryan’s top ten tips for dealing with market volatility
- Time in the market is better than timing the market. There will always be something that you and the markets are worrying about so if you are waiting for the perfect time, you’ll never invest.
- If you are not able to spend time researching investments, don’t guess. Passive investing is right for many people, keeping costs low and allowing compounding over time.
- Understand how each active fund manager invests before you give them your hard-earned money. It can be painful to find out at a later stage that their investment philosophy is different to what you initially assumed.
- Understand what role each investment plays in your portfolio. View your portfolio like a jigsaw with each holding representing a piece of the picture you are trying to make.
- Avoid the illusion of diversification. A portfolio of lots of holdings all exposed to the same risk factors or economic scenario is no diversification at all.
- Resist the temptation to tinker. Human psychology means that we are predisposed to doing something but remember that choosing not to act is an investment decision in itself.
- Don’t fall in love with your investments. There should be no sacred cows in a portfolio so if a holding needs attention, then act.
- Always understand which holdings will protect you if you are wrong. If you don’t have any investments that can prosper when the outlook changes, you aren’t properly diversified.
- Be prepared to invest in unfashionable areas. The crowd are often wrong and focusing on areas people dislike can provide a wealth of ideas and build in natural diversification.
- Rebalance your portfolio regularly to lock in gains. A systematic approach will remove your emotional biases and help adopt a ‘buy low, sell high’ strategy.
If you’ve any concerns during these tougher times in the markets, get in contact with Steps To Investing with any questions and we’ll get one of our experts to help.