Riding out stock market volatility
Posted on Dec 17, 2018
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We have experienced several periods of increased volatility in stock markets this year and, as a result, global share markets are now noticeably lower than 12 months ago. Funds linked predominately to shares have also experienced reasonable falls.
At The Goodman Partnership, we have implemented a number of processes and ideas over the last year in anticipation of increased volatility. We suggested to those clients of ours who have committed reasonable sums into long-term investments in the recent past to gradually phase monies into the recommended funds, with a view to reducing the possibility of seeing the capital value fall significantly if it had been fully invested at the outset.
We have also been reducing our equity exposure, specifically from funds predominately tracking a particular stock market index, in favour of strategies holding more defensive multi-asset approaches. Generally, these measures have worked well in recent months in a changing financial climate.
For a more expansive look at the economy, please do look at our Quarterly Market Commentary – which you can read online.
Within that we note that history has taught us that stock markets have delivered good returns in the period leading up to a recession. As always, it is impossible to predict the future – especially whether stocks and shares will fall or rise. Therefore, it is important that medium to long term investors maintain a diversified portfolio to benefit from stock market rises when they happen and to dilute volatility when there is a fall. Our strong belief is that a sensible investment strategy involves riding out stock market volatility.
We also shared an article with our clients recently titled ‘Missing the Best and Worst Days’. This explains why investors should try to remain invested during periods of volatility. The main reason is that history shows that the risk of missing out on returns when sentiment improves and stock markets increase can have a serious and detrimental impact on future long-term returns.
While any fall in the value of investments is unwelcome, the overall reduction in investments is likely to be considerably less than the falls seem on share markets in recent months. We expect the careful and considered asset allocation and diversification of our clients’ investments to have helped to protect, to some extent, the value of their arrangements over the last 12 months.
As a firm, we remain in constant dialogue with the leading investment groups and our Investment Research Team will continue to monitor developments.
Each and every time we have experienced market turbulence during our firm’s 35-year history, we have advised our clients to remain calm and ride out the volatility. This, together with regular communication and yearly reviews, is essential in keeping a long-term financial planning strategy on track. Our strategy and approach has proved sensible and successful for clients in the past and we are confident it will continue to do so.
If you’ve got any questions, please do get in touch on tel: 01892 500600