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Volatility is normal

In times of market volatility, it can be worthwhile to take a step back.

Topic: Investing

Avoiding emotional reactions and staying invested for the long term can be easier in theory than practice. In times of market volatility, it can be worthwhile to take a step back and remember that the markets are not just numbers or lines on a screen. They are made up of the businesses and dreams of people all over the world. Like the hundreds of millions of lives they reflect, ups and downs are natural.

Good and bad days

Between the high and the lows, triumphs and downturns, the investment markets feel almost human sometimes. This is not a coincidence. Made up of hundreds of millions of people each taking their own risks, from starting a business to buying a first bond, the market is a living, breathing representation of ourselves. It is a collection of personal journeys happening all over the world and playing out in real time.

As history unfolds across trading screens and the markets breathe with rises and falls, it is important to remember, if we can, that this is the natural flow of events. Volatility is normal.

Taking a step back

Looking through history, even at some of the most traumatic spells of volatility including the War years, Wall Street Crash, 1980s, and the 1990s and 2008 recessions – the world nevertheless went on, and the markets with it. Taking each market movement with a sense of global historical perspective is vital to maintaining a clear head and not reacting too quickly. For example, despite all the politico-economic ups and downs of the past 29 years, if you had invested just £1 in the FTSE All Share Index in 1990, it would be worth over £8.64[1] today*. This simple illustration speaks volumes about the power of staying invested. Naturally, there may have been many times when investors were tempted to react and sell... but they would probably be kicking themselves now. 

Emotional investing is instinctive, with many people panic selling when there is a downturn in the market or conversely buying on a high. Easier said than done, but once you have a strong, diversified portfolio, which is designed to withstand market turbulence – the best thing for you to do is often… nothing. Nothing at all. You may win today, or lose tomorrow, but long term, as seen in the case above, the odds are more likely to be in your favour.

Avoiding emotional investing is a true test of logic and willpower, and it can feel painful as an investor. However, it’s important to remember that as history tells us, more often than not, the investment markets have always picked themselves up again over the long term, meaning diversified investing with a medium to long time horizon can be one of the best options to make your money work harder.

Your money works harder long term

Market movements and how they affect your portfolio, can ebb and flow, which is natural. Although it may feel tense, we should remember the compelling nature of investments which incorporates both the power of compounding returns and better inflation protection. These extraordinary advantages can help to protect and nurture your money over the years, despite today’s fluctuations. So, when the markets experience turbulence and volatility, much like they are now, it can pay to simply stay calm and remain invested.

If you have any questions about market movements, volatility or any other investment topics, please feel free to call our support team.


*Please remember past performance is not necessarily a guide to the future and should not be relied upon.

With investment your capital is at risk.

This article is not intended to constitute personal advice and no action should be taken, or not taken, on account of information provided.

[1] Source: FactSet financial data and analytics, as of December 31, 2018.

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