Long-term investors needn’t fear volatility
You may have read in the press that markets have been particularly volatile in 2018. But what does this mean for your investments?
While stories about stock market falls are guaranteed to make headlines, the subsequent rebounds in prices get less coverage; and that’s when the best investors can often make their money. While the great financial crisis of 2008 and the stock market lows of March 2009 are still fresh in many people’s memories, it’s worth noting that an investment then in global stocks would have grown more than twofold more than a decade down the line*.
That might be an extreme example with those kinds of returns never guaranteed, and those who try to second-guess markets or try to time when to invest their wealth often get it wrong. However, it does go some way to illustrate the benefits of investing over a long-term time horizon and riding through the peaks and troughs of market movements.
Investing for the long term
Indeed, the investment propositions we can recommend to you (our Graphene models and the Omnis Managed Portfolio Service), are designed specifically with a long-term investment in mind – a minimum of at least five to seven years.
The portfolios are also designed depending on your specific attitude to risk and aim to deliver lower volatility than the wider stock market; dampening extreme spikes in prices. How do we do this? The key is what we call ‘asset allocation’. This is smoothing out returns through diversification across different investment types, from stocks to bonds, and alternative types of investments, such as property or natural resources like oil or precious metals.
Volatility in markets has many varied causes; from political shifts and central bank actions through to modern media, for example tweets from world leaders like Donald Trump. Rather than focus solely on these, often random factors, the Omnis fund managers responsible for your investment are looking at specifics that determine the real value of stocks and shares, and overarching thematic trends, such as long-term changes in demographics or spending habits across the globe.
Embracing volatility
The key takeaway here is that short-term movements in stock markets, as sharp as they may be, are part and parcel of investing, and volatility is often welcomed by professional investors looking for new opportunities to put money to work. Those with their wealth in
well-managed and well-diversified portfolios should, in most cases, have little to fear as long as they follow their adviser’s recommendations in investing over a sensible timeframe and their investments correctly reflect their attitude to risk and capacity for loss.
*MSCI World Diversified Financials Index
The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested.
Past performance is not a reliable indicator of future performance and should not be relied upon.
If you’d like to know more about our approach to wealth management, please get in touch.
