Why taking a long term view can help investors cope with market volatility

While the US’s softer than expected inflation reading on 11th October brought a small flicker of stability to stock market activity, continued concerns over the US/China trade agreements, a tight labour market and rising oil prices are all pointing towards a potentially unsettling time ahead for investment markets.

Furthermore, with inflation responding to activity with long lags, experts predict that the result of the current strong economic activity is likely to be felt through elevated inflation in 2019. With no sign of the trade tensions abating, and the potential for rates in the US to continue to rise, volatility in global equities looks more and more likely as the markets adjust to a lower liquidity and politically-driven world.

It was the US that prompted a tough week for markets, with investors selling off and taking profits on parts of the market that had outperformed the most this year. European investors then followed suit, driven by concerns over the impact of the US/China trade war on European exports, as did emerging markets and Japan, suggesting that sell-off activity was largely concentrated to those exposed to the trade war tensions.

Nathan Mead-Wellings, Director at Finura, comments:

“With the current cloud of political uncertainty looking to stay put at least for the immediate future, it’s not surprising that some investors are concerned about committing money to the market. Predicting short term markets is difficult and returns have always gone up and down, which is why we encourage our clients not to panic and make snap decisions that could cost them in the long term. For the average risk grade 5 investor, the maximum gain and loss over the last 20-year period would have been 27.64% and 19.67 respectively*; those who are willing to absorb short term risk for the potential of longer-term benefit are more likely to achieve their financial and lifestyle goals.”

As humans, when we hear the word volatility, our natural reaction may be to err on the side of caution. However, by better understanding what kind of investors we are, the better prepared we can be when it comes to making decisions relating to our investments. Nathan continues:

“At Finura, one of our core approaches to financial planning is to use behavioural finance techniques to help our clients uncover the drivers behind their financial decision making. Through identifying these biases or tendencies, we can use this insight to develop a solution that puts analysis ahead of instinct and that fits with our clients as an individual. That said, for clients who are concerned about the impact of current volatility, there is a number of more cautious fund options out there that may better suit their risk profile.”

For more information on how current market activity may affect your investments, please contact your Finura adviser.

*Fusion Wealth.

Further reading:
Why investors should be prepared for volatility
How diversification can help achieve your long-term goals
Understanding how market volatility can create opportunities

Articles on this website are offered only for general informational and educational purposes. They are not offered as and do not constitute financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional. Capital is at risk; investments and the income from them can fall as well as rise.

Sources:
https://www.schroders.com/en/uk/tp/economics2/economics/tough-week-for-markets-amid-worries-over-rising-interest-rates/
https://www.schroders.com/en/uk/tp/economics2/economics/us-finds-temporary-inflation-relief/

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