The market volatility resulting from the ill-fated mini-Budget on September 23 has created real concern for investors. Most of the measures announced that day were reversed just weeks later, but the fallout has left markets in a state of turmoil.
The FTSE 100 was at 7,237.6 on September 21, two days before the mini-Budget. Soon after on September 29, it had dropped to 6,881.6 but it had recovered to more than 7,000 at the time of writing.
This level of volatility within such a short period of time is concerning for anyone, but there are things that can be done if you want to insulate yourself from the ups and downs of the markets.
One of the best ways to even out the peaks and troughs of volatile markets is to invest any money you want to put into the markets over time. Making regular monthly contributions as opposed to a one-off investment allows you to make the most of the dips when the market falls.
Putting money in at different times allows you to spread the risk of your investment because you are not making a single investment when the market may be at its peak. Instead, you are buying no matter what the value of the market is, meaning you get more when it is in a dip, and slightly less for your investment when it is at a peak. When your investments rise in value, the units will rise accordingly, and the relative difference in price will be smoothed out.
It is also important to diversify your investments to cope with any downturn. Diversification can be done in a variety of ways – by sector such as energy, healthcare and so on; by geographical location as in the UK, US, and Asia; or by theme such as environmental, social and governance (ESG) investing. Or a combination of all of these.
Making sure your portfolio is balanced and diversified is not easy to do alone unless you are an expert, so you would be wise to get professional help to achieve this. It must also be done within your own risk profile, and in a way that meets your short-term and long-term investment goals.
You need to monitor your portfolio’s performance and balance over time. When different areas of your portfolio rise and fall, the balance of that portfolio can become skewed. It should be revisited at least once a year, and more often if there is a change in your circumstances or a major change in an area you are investing in. Remember, this applies to your pension funds too, not just your investment portfolio. You need to consider everything together.
The worst thing you can do if you see markets fall is panic. Any knee-jerk reactions you make to market falls are likely to result in bad decisions being made. Besides, the very worst thing you can do is sell assets when they have fallen in value. It is far better to stay invested and wait for the recovery to come. The key thing to remember is that while seeing your portfolio value fall on a screen, unless you crystallise that loss by selling, it is merely a paper loss. Bide your time and the markets should recover.
This is where a good accountant can help you. Whether you are investing for your business or personally, the same rule would apply. It can be worrying when you see markets falling, or your investments worth less than they were. But if you have concerns, contact your accountant. He or she will be able to advise you on the best course of action, which in many cases is to do nothing at all.
If you have concerns about your portfolio or your current investment mix, speak to us and we will work with you to make any necessary changes to help rebalance your portfolio.