Cutting through the noise in volatile markets
Updated: Mar 24
The headlines are shouting at investors this week as markets have become volatile due to the uncertainty surrounding the Corona virus. So how should investors think and react to headlines about “the biggest ever points fall in the Dow Jones” or “trillions being wiped off world stock markets”?
First, we need to put the headlines and noise into context.
· It looks as though the global economy will enter a technical recession. It was always going to at some point as economies are cyclical.
· We know that markets typically have negative years every three to four years, so a negative stock market year is not unexpected.
· Many markets are still above their low points in the last 12 months
· Typically, when stock markets suffer big loses they recover within 24 months.
Trying to predict which way the market is going to go in the short term (3-12 months) is impossible for both professional and private investors. What markets hate is uncertainty and as the effect of the Corona virus outbreak becomes known, or a vaccination is developed, then we should see a reduction in volatility before the eventual market recovery.
What should investors do?
For some the current market volatility represents an opportunity. Warren Buffett once said that investors should be “fearful when others are greedy and greedy when others are fearful”. This could be a good time to invest over the medium term (5 years) if you have excess funds sitting in cash savings or cash ISAs.
Do not get caught up in the emotion of news headlines. This is probably one of the worst times to sell out of equity markets, provided you can wait for the [inevitable] recovery.
Rebalance your portfolio. If your portfolio is build around asset allocation, with a proportion in safer assets as well as equities, this might be a good time to reset that allocation back to its intended proportions. For Bluecoat clients we do this in at pre-determined times, taking advantage of market falls by selling safer assets and buying share based funds at a lower price.
If you do not already have one, speak to a Charter Financial Planner who uses an investment philosophy that is disciplined, structured and robust that works throughout different market cycles.
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