Ryan Hughes is a professional fund selector at investment platform AJ Bell, having spent a career of two decades choosing funds for products designed for financial advisers. Steps to Investing recently interviewed him for its podcast on How to choose funds. We also caught up with him to find out his golden rules on how to approach elevated market volatility that we’re seeing at the moment.
In this article:
- Why markets are currently volatile
- Checking your portfolio is robust
- Ryan Hughes top ten rules for navigating market volatility
Topsy turvy markets
Investors have faced a torrid time over the past couple of years, first with Covid and now the Russia Ukraine war causing significant volatility in markets and wild swings in some individual stock prices. In times of market volatility it can help to have a clear investment strategy to ensure you don’t succumb to knee-jerk reactions that can have a damaging impact on investment returns over the long term.
Ryan Hughes, head of investment research at AJ Bell, outlines ten golden rules that can help investors build a portfolio and navigate market volatility:
“With the end of the tax year looming, it’s a good opportunity for investors to ensure that their portfolio is as robust as it can be. 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. 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.”
Ten golden rules for navigating market volatility
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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
8. 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.
9. 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.
10. 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.