Volatility in current investment markets: Perspective

You may be reading headlines and news articles that give rise to understandable concern about the position of your investments presently. We want to provide some perspective to these events and reconfirm our support in navigating this current volatility.

Cutting through the ‘noise’

Popular news outlets and commentary can make a great deal of ‘noise’ about the progress of investment markets, especially when the movement of those markets is in a downward trend. It can seem that markets then lurch from one problem to another, as sentiment turns negative and media coverage gathers momentum. There are various attempts to put market performance in context with somewhat sensationalist statements seeking to grab attention. It can become confusing, and the natural reaction is to ask, can anything be done?

What is not communicated well is the extent to which these market issues affect you personally. Granted a fall in share or stock values will have some impact on your investment or pension portfolio, but it would be wrong to look at the kind of losses quoted for individual share prices, or even the FTSE and then assume similar losses also apply to your portfolio. It would be similarly wrong to think that such times are unexpected or unprecedented. They are neither.

Long term performance in perspective

Since the financial crisis of 2008, investors have enjoyed a period of positive returns and low levels of volatility. These ‘calm’ conditions are remarkable in themselves and we should bear in mind that such a long period of subdued volatility is historically very unusual.

All investors accept that risk is part of the deal. As your professional adviser, I seek to maximise the return you receive within a tolerable level of risk. We expect that during the life of your investments, there will be periods of negative returns, and that in these periods the investment solutions we have put in place will seek to limit the risk to which you are exposed, as well as position themselves to take advantage when positive conditions return. Here are three facts about periods of historical volatility:

  • Following the 2008 financial crisis, the FTSE100 took approximately 23 months to return to their pre-crisis levels. The following 36 months posted returns of over 26% for investors. A typical investor should of course plan to invest for 5 years or more.
  • Between July 2011 and August 2011, the FTSE100 lost approximately 15%, meanwhile a typical diversified retail investment fund, and recommended Sandringham investment solution, lost 5.8% in the same period.
  • 15 year returns of both the FTSE and the Sandringham investment solution (mentioned above) are in excess of 115% cumulatively.

You are well positioned

By investing in a portfolio or fund that has exposure to a broad range of assets you a diversifying the risk of your holdings, which is invaluable in periods of volatility. Put simply, you are not fully invested in the UK stock market (and so the FTSE performance is only partially relevant to you). Nor are you invested predominantly in Oil stocks, and so concerns about Russian/OPEC competition are only important to the extent they impact wider markets. Additionally, your investments are spread geographically, which lends resilience to the potential spread of virus or disease around the globe.

Its important to monitor your investment, but we must counter the temptation to make short term decisions by continuing to look at your personal goals and timescales, as well as draw on the weight of historical evidence that help to inform a successful approach in these times of some uncertainty.

What is certain is that making changes to your portfolio now will crystallise any losses now, risk missing out on any future gains, and place you in the almost impossible position of needing to make a future decision about when to re-invest, if at all.

The overriding weight of academic and historical data shows that clients (and advisers) are unable to ‘time’ the markets effectively. There may well be more volatility to come and but we would  recommend countering this with considered and objective decisions based on your own long-term needs and objectives rather than ‘react’ to circumstances on a wider scale.

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