Eight Ways to Manage Investment Market Volatility

There’s no denying that markets are volatile right now – between the COVID pandemic and the war in Ukraine, a number of major events are contributing to some unease among investors.

Unfortunately, there is no way to accurately predict when stability will return. But there are a number of things you can do to not only survive, but also thrive in the face of market uncertainty.

The main thing is to understand what you can and cannot control. Armed with this information, you will be in a better position to navigate the current market.

Market declines are unpredictable

The truth is, no one can consistently predict when markets will go down and by how much. The activity here in New Zealand during the early stages of the pandemic is a classic example – despite all doomsday predictions, our investment markets have recovered in just four months from a significant but temporary decline. . At the same time, unemployment levels have actually fallen and the housing market has grown by an average of 25%!

The duration of any decline is another unknown

Over the past four decades, global declines have (for the most part) been relatively brief. But history is replete with examples of longer lulls, including the crash of 1929, when it was estimated that it took investors 16 years to recover. On the other hand, markets only took 15 days to rebound after the September 11 attacks, and just over a week after the infamous Brexit vote.

It’s impossible to get your perfect timing

Getting out of the market at the right time and getting back in at an equally ideal time is extremely difficult. Accepting this will definitely help ease some of the pressure you may be putting on yourself right now.

Knowledge is power !

Investing is a long game, and stock markets always have ups and downs. The worst thing you can do is lose patience or panic – if you sell during a decline, you could rob yourself of the opportunity to break out on the other side and lock in your losses. However, once you are clear about the things that are out of your hands, you can start exploring the things you can influence.

Active management is your secret weapon

When markets are volatile, partnering with an investment firm that employs an active management strategy is invaluable. This approach is essentially the opposite of ‘set and forget’, and will see the fund manager continuously analyze portfolio companies while striving to reduce risk and take advantage of new opportunities as they arise. they show up.

Diversification is essential

If you invest all your money in one business, you run the risk of losing it all if that business were to experience catastrophic bankruptcy. If, on the other hand, your money is spread across multiple companies, industries, and locations, your risk is greatly reduced. A diversified investment fund that holds multiple stocks and/or corporate bonds, often in multiple markets, can be a great way to achieve the benefits of diversification.

Know your risk profile

When it comes to investing, the old adage “with risk comes reward” certainly holds true. It is important to recognize the level of risk you are comfortable with, especially when the market is behaving unpredictably. When you understand your personal risk profile, you’ll be able to choose the right funds, from those that are more conservative (and basically aim to protect you from major peaks and troughs) to those that are more aggressive (and chase the worst returns). higher ).

Stay focused on the big picture

No, it’s not easy right now, but rest assured, there are still plenty of opportunities to be had and victories to be won. Stay focused on your long-term goals, try to take emotion out of your decisions, and seek expert advice from an active management company with a proven track record in all conditions.

If you want to learn more about what we’re doing to navigate today’s market, visit our website where you’ll find a series of insightful articles. You can also call us for a non-binding chat on 0800 662 345.

Disclaimer: This article is intended to provide general information only. It does not take into account your investment needs or your personal situation. It is not intended to be considered financial advice. You should not rely on the information contained in this communication to make any financial decisions. Before making financial decisions, you may want to seek financial advice. Read the relevant Milford Product Disclosure Statement as published by Milford Funds Ltd on milfordasset.com.

This article was created for Milford.