Eight ways to navigate volatility in investment markets

  • 11/04/2022
  • Sponsored by - Milford
Eight ways to navigate volatility in investment markets
Photo credit: Getty Images

There's no denying that the markets are volatile right now – between the COVID pandemic and the war in Ukraine, a number of major events are contributing to a definite sense of unease amongst investors. 

Unfortunately, there's no way to predict when stability will return with any sense of accuracy. But there are a number of things you can do to not only survive, but potentially thrive in the face of market uncertainty. 

The main thing to do is understand what you can, and can't, control. Armed with this information you'll be better placed to navigate the current market. 

Market declines are unpredictable

The truth of the matter is, no one can consistently predict when markets are going to decline, and to what degree. Activity here in New Zealand during the early stages of the pandemic is a classic example – for all the doomsday predictions, our investment markets recovered in just four months following a significant, but as it turned out, temporary dip. At the same time, unemployment levels actually dropped, and the housing market rose by an average of 25 percent!

The length of any decline is another unknown

Over the last four decades, global declines have (for the most part) been relatively brief. But history has plenty of examples of lengthier lulls, most notably the crash of 1929, where it's estimated it took investors 16 years to recover. On the flip side, the markets took just 15 days to bounce back after the 9/11 attacks, and just over a week following the infamous Brexit vote. 

It's impossible to get your timing perfect

Getting out of the market at exactly the right time, and getting back into it at a similarly ideal moment, is exceedingly difficult. Accepting this will definitely help to alleviate some of the pressure you may be putting on yourself right now.   

Knowledge is power!

Investing is a long game, and share markets always have peaks and troughs. The worst thing you can do is to lose patience or panic – if you sell during a decline you could deny yourself the opportunity to come out the other side, and are essentially locking in your losses. However, once you're clear on the things which are out of your hands, you can start to explore those that you can influence. 

Active Management is your secret weapon

When markets are volatile, partnering with an investment company who employs an Active Management strategy is invaluable. This approach is essentially the opposite of 'set-and-forget', and will see the fund manager constantly analysing the companies in the portfolio while striving to reduce risk and leverage fresh opportunities as they present themselves. 

Diversification is critical

If you invest all of your money in one company, you run the risk of losing everything should that company experience a catastrophic failure. If, on the other hand, your money is spread across a range of companies, industries and locations, your risk is significantly reduced. A diversified investment fund that holds multiple company shares and/or bonds often across multiple markets can be an excellent way to achieve the benefits of diversification.

Know your risk profile

When it comes to investment, the old adage 'with risk comes reward' is certainly true. Recognising how much risk you're comfortable with is important, particularly when the market is behaving in an unpredictable fashion. When you understand your personal risk profile you'll be able to choose the right funds, from those which are more conservative (and essentially aim to shield you for the major peaks and troughs) to those which are more aggressive (and chase the higher returns). 

Stay focused on the big picture

No, it's not easy at the moment, but rest assured there are still plenty of opportunities to be embraced and wins to be had. Stay focused on your long-term goals, try to take the emotion out of your decisions, and seek expert advice from an Active Management firm with a proven track record across all conditions. 

If you would like to learn more about what we're doing to navigate the current market, visit our website where you'll find an array of insightful articles. Alternatively, give us a call for a no-obligation chat on 0800 662 345. 

Disclaimer: This article is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as financial advice. You should not rely on any information in this communication in making financial decisions. Before making financial decisions you may wish to seek financial advice. Read the relevant Milford Product Disclosure Statement as issued by Milford Funds Ltd at milfordasset.com.

This article was created for Milford.