A volatile week in the stock markets – what does it mean for your money?

Since the Standard & Poor’s 500-stock index took a 3.2 percent drop last Friday (21^st August) and continued the downward trend when markets re-opened on Monday, there has been a plethora of speculation over what this activity means for investors.

There are a number of global factors that have been attributed to this volatility – the devaluation of the renmimbi, broader fears over China, a drop in oil prices and a credit squeeze in emerging markets have all played their part. But they are exactly that; a part of a much bigger picture. Thus with no single force being attributed for triggering this market behaviour, there is a sense of uncertainty beginning to prevail and many have started to ask if now is the right time to re-gear their investments and give the stock markets a swerve.

The overall consensus has been not to panic. Stocks have always been most useful for achieving long-term goals and most likely only form part of a wider portfolio. If you have been investing in stocks over the last six years, the likelihood is you are already in front, and if such a decline does happen, your investments will have time to recover and you can potentially increase your holdings through buying when prices are lower.

Market commentators suggest that there is nothing abnormal about what is occurring and, if anything, it provides a welcome breather at a time when some markets had started to look a little unstable. Stock market investment has always called for a careful and actively managed approach, one which requires investors to take a long-term view and mitigate their risk by diversifying their investments across a broad range of asset classes. That hasn’t changed.

History also suggests that stocks are the most accessible route to getting the returns we’ll need to retire someday. Whilst there are safer alternatives out there – such as cash and certain bonds – there are few investments that can deliver the same kinds of returns that stocks do without a similar level of anxiety or risk.

Yesterday’s bounce back in parts of the West, following China’s decision to cut its main lending rate for the fifth time in a year, have only gone to strengthen the call for sitting tight. If you have been investing in stocks over the past few years then our advice would be to keep it that way, keep a close eye on the markets you are invested in and, if still in doubt, seek advice from your financial advisor.

Sources: Advice After Stock Market Drop: Take Some Deep Breaths, and Don’t Do a Thing, Don’t panic, the outlook after the stock market crash remains positive – despite volatility and This Week’s Market Sell-Off May Not Be Such a Bad Thing