Why You Shouldn’t Panic When The Stock Market Is Volatile
There’s a lot going on in the world right now. New and ongoing conflicts - and even changing weather patterns - are disrupting the world as we know it. Elections and the resulting new governments and policies are having global implications. Stock markets react to periods of uncertainty and economic drivers like changes in interest rates or tariffs. So it’s no surprise that all the current political and economic instability is taking its toll on our investments.
Stock market volatility is, unfortunately, a fact of life. As the small print always says, investments can go down as well as up! We go through periods of greater uncertainty, and that leads to greater volatility. The key thing to remember is that ‘panicking’ and making knee-jerk reactions during these times is not an effective investment tactic.
Good financial habits are not just about putting money away for the future. They will also help you make the right decisions when things get tricky.
Markets go down as well as up
Seeing markets go down can be unnerving, and it’s tempting to think you should sell your investments before they lose any more value. However, when we invest, we know at the outset that there will always be periods when the markets will not do so well. If you’re investing for the medium or long term, it’s important to remember you are taking a longer view.
Day traders and those who buy stocks for speculative reasons will buy and sell regularly and realise real profits and losses. However, for medium- and long-term investors these are just blips in the market. Unless you have a very specific need or reason, just as you don’t ‘have’ to sell your investments as the market goes up, you don’t ‘have’ to sell as the market goes down. And long-term discipline should beat a short-term reaction.
Time in the market – not timing the market
Day traders and speculative investors are trying to ‘time’ the market. They do this with access to information and technology that comes with the job – and the full knowledge that they could get it completely wrong. Their intention is to make a profit in a short amount of time and then reinvest their money in new stocks and shares to do the same thing again. They work on the concept of frequent short-term trades and that over time they will make more than they lose.
There is a cost to buying and selling shares that is additional to the market price of the investment itself. There are fees and commissions to pay, as well as potential tax liabilities that may arise from realising profits. If you try to time the market and aim to sell when you think the market is going down and buy it back as it starts to rise again, it can be costly.
If you are tempted to try to time the market:
- Remember all those extra transactional costs.
- Remember you are unlikely to always get it right. You could end up buying it back at a higher price, or not at all.
- Remember you have invested with the intention of growing your money over time, not with the intention of reacting every time something changes.
The power of staying invested
As we know, investments can go down as well as up. However, if you take a medium- or long-term view and the right advice, you can grow your wealth. You should be able to find products that suit your timescale and attitude to risk that will be worth more in the future than if you had kept your money in cash. Investing is the key to wealth.
There will always be times when the stock markets rise quickly, and these are usually followed by corrections and periods of downturn. However, over time, these highs and lows tend to even out and the markets trend higher: historically, the markets have trended upwards.
Warren Buffett, the billionaire American investor and philanthropist, is known for his success in investing and attitude to making investments for the long term. Despite becoming a millionaire in his 30s, Buffett has accumulated most of his wealth, estimated at over $150 billion, since the age of 65. He is now in his mid 90s, and his success shows his approach of patience and long-term investment strategies pay off.
What you can control during stock market volatility
When we are in times of financial and economic instability it can sometimes be difficult to remain positive. We can’t control what governments do, or what else is happening in the world - or how the stock markets respond to it. What we can do, however, is to remind ourselves why we invested and remember we are in it for the long term.
Continuing to invest regularly, regardless of market conditions at the time, helps to average out the price of your investments. By being disciplined we can avoid emotional decisions and stay calm when many others are panicking – and making bad decisions.
Get expert financial advice
If you are worried about your investments, make sure you speak to a financial adviser. A qualified financial adviser like Paula Bicknell Wealth will help you build a resilient plan that will carry you through difficult times. Whether you already have investments in the stock market, or you would like to speak to an adviser about starting a personalised plan, we can help. Contact us to set up a meeting. We are based in Theale, Reading, but work with our clients throughout the UK virtually too.
Although the content of the article was correct at the time of writing, the accuracy of the information should not be relied upon, as it may have been subject to subsequent tax, legislative or event changes.
