Investing? Markets change but slow and steady wins the race?

A man having coffee with his dog

Investing

Gareth Trainor

7th March 2018 at 4:15pm

We’ve seen some fairly significant market falls in recent weeks, which you may have found unnerving if you’ve seen the value of your investments fall. But volatility is part and parcel of investing over the long term, so at times like this it’s important to remain calm and act rationally. The name of the game is to think long term and weather the storm.

Why you should take a long-term view

As you can see below, the past 33 years – which is as far back as the data for the main UK market index, the FTSE® All-Share Index, goes – have offered exceptional returns for many investors.

Market volatility set against world events 1985 to 2018

Source: Financial Express/FinXL. FTSE® All-Share Index, total return with dividends reinvested, from 31 December 1985 to 31 December 2017. Figures don’t factor in any charges. Past performance should not be used as a guide to future performance.

But market volatility has undoubtedly caught out some investors over the years, causing them to panic and sell, losing money in the process.

It’s the investors who have stayed the course and held on to their investments patiently who are likely to be reaping the rewards today and in the future.

Remember though, investment growth isn’t guaranteed, it can fall in value too. It’s possible that it could be worth less than you invested.

Try to control your emotions

It can be easy to panic when you see the value of your investments fall – it’s a very normal reaction. But keeping your emotions in check is vitally important.

If you give way to fear and sell, you’re likely to be selling after markets have already fallen and, importantly, before they rise again. That means you’re locking in losses and will potentially have less money than someone who kept their composure, and their money invested.

On the flip side, if you see markets doing really well, you might be tempted to buy in to them then. But, if you do that, you could end up buying at the top of the market, and your new investments could fall in value soon after.

This illustrates why trying to time the markets can be a dangerous game and catching the top and bottom end of things is extremely hard. So don’t try to time them – focus on what you can control. After all, if the markets didn’t spot falls coming, why would you?

Focus on what you can control

Periods of market volatility are a valuable reminder of the importance of diversifying – of spreading your money across different types of investments and geographical locations.

If you’re investing in only one or two of these then you’re exposing yourself to quite a degree of risk. But diversifying across investments and countries can help you get a much better balance between risk and return. Find out more about this in my blog on the importance of diversification and correlation in investments.

Keep a close eye on your investments

Any important event, wherever it happens in the world, may have an effect on financial markets. That’s why it’s important to monitor your investments regularly and make changes as necessary.

If you don’t have the knowledge or time to review your investments, then think about delegating management to an expert.

And if you want to keep up-to-date with what’s happening in global markets, read the monthly Market View by Andrew Milligan, Head of Global Strategy at Standard Life Investments.

Remember, whenever you invest you could get back less than you paid in. Past performance is not a reliable indicator of future performance.

FTSE® All-Share All rights in the FTSE® All-Share Index vest in FTSE International Limited (“FTSE”). “FTSE” is a trade mark of the London Stock Exchange Group companies and is used by FTSE under licence.

The information in this blog or any response to comments should not be regarded as financial advice and is based on our understanding in March 2018.

Join the conversation on twitter @StandardLifeUK and Facebook