Market volatility can be unsettling, even for experienced investors. The rapid fluctuations in asset prices can lead to anxiety and impulsive decisions, which may not align with long-term financial goals. However, maintaining composure and making informed decisions is crucial for achieving financial success over time. Our financial planning team is focused on continually reviewing our investment approach to ensure we are delivering an exceptional service, facilitating consistent investment outcomes and adding value wherever we can. Here are the top strategies our financial planning team suggest to help you navigate challenging times:
Stick to your plan
Having a well-thought-out investment plan tailored to your financial goals and risk tolerance is essential. This plan should include a diversified portfolio and a clear understanding of your investment horizon. During volatile periods, resist the urge to make impulsive changes based on short-term market movements. Trust in your strategy and remember why you chose it in the first place. Your plan is designed to weather market ups and downs, so sticking to it can help you avoid costly mistakes.
Diversify your portfolio
Diversification is a key strategy for managing risk. By spreading your investments across various asset classes, such as equities, bonds, alternatives and cash, you can reduce the impact of market fluctuations on your overall portfolio. Different asset classes often react differently to market conditions, so a diversified portfolio can help smooth out returns and provide more stability.
Following extensive research, due diligence and back-testing, we created the PM+M Managed Portfolio Service (MPS) in partnership with AJ Bell. This is a bespoke portfolio managed in collaboration with AJ Bell, collaboratively we have built six model portfolios to meet a variety of investment needs and align with varying levels of risk tolerance.
We continually monitor and proactively make fund and asset allocation changes as and when we feel necessary. You can find out more about our portfolio service here.
Focus on the long term
Market volatility is often short-lived, and reacting to daily movements can lead to unnecessary stress and poor investment decisions. Instead, focus on your long-term goals and remember that historical data shows markets tend to recover over time. Long-term investing allows you to benefit from the compounding of returns and reduces the impact of short-term market noise. Keep your eyes on the prize and avoid getting caught up in the day-to-day fluctuations.
Rebalance regularly
Regularly rebalancing your portfolio is essential to maintaining your desired level of risk. Over time, certain investments may outperform others, causing your asset allocation to drift from its original targets. By periodically reviewing and adjusting your portfolio, you can ensure it remains aligned with your risk tolerance and financial goals. Rebalancing can also help you take advantage of market opportunities by buying low and selling high.
Stay informed, not overwhelmed
Staying informed about market conditions is important, but constant monitoring of financial news can lead to information overload and increased anxiety. Instead, rely on trusted sources and your financial adviser for updates and insights. Set specific times to review your investments and avoid checking them too frequently. This approach can help you stay focused on your strategy and make more rational decisions.
Maintain an emergency fund
Holding cash reserves to cover your expenses for a specific period can provide peace of mind during volatile market cycles. An emergency fund acts as a financial buffer, allowing you to avoid making hasty decisions out of fear or necessity. It ensures you have liquidity to meet your needs without having to sell investments at a loss. If you are in the accumulation phase, aim to have enough cash to cover three to six months of living expenses, if possible. When you are decumulating (spending your wealth), you may choose to hold sufficient cash to cover at least one to two years’ worth of outgoings.
Summary
Navigating market volatility requires a combination of discipline, patience, and informed decision-making. Market volatility is a natural part of investing, and with the right strategies, you can turn it into an opportunity for growth.
If you would like to discuss your investments in more detail, require personalised advice or would like to find out more about the PM+M Managed Portfolio Service, please get in touch with our financial planning team by emailing financialplanning@pmm.co.uk or calling 01254 679131.
The value of investments can fall as well as rise. You may not get back what you invest.
The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction.
