There’s no doubt that periods of market volatility can be very unsettling for investors. Nevertheless, history shows us that, although equities can certainly be risky in the short term, they remain the best-performing asset class over the long term.
Although market instability can be unnerving and hard to tolerate, it can also create attractive opportunities. During periods of general market decline, the share prices of high-quality businesses tend to fall alongside those of companies that are experiencing genuine problems. These instances provide astute investors with an opportunity to pick up high-quality stocks at bargain prices, boosting their overall portfolio in the process.
Even the most experienced investment professionals cannot ‘time’ the market consistently. It is all but impossible to assess whether prices have peaked or troughed, so keep your head and don’t allow yourself to be flustered into selling for the wrong reasons. Instead, during periods of market instability, take the time to assess your own particular situation. Ask yourself two key questions: ‘Does my investment portfolio reflect my investment goals, personal circumstances and tolerance for risk?’ and ‘Is my portfolio adequately diversified across different asset classes and geographical areas?’ If you cannot answer ‘yes’ to both these questions, it is probably time to review your portfolio.
It’s always worth taking the time to ensure that your portfolio is on track to achieve your long-term aims whilst weathering the shorter-term storms. For help and guidance, talk to your financial adviser.