Staying the course in volatile markets

Market swings can test even experienced investors and so it is not surprising that turbulence can leave many feeling unsettled.

But while the headlines can be alarming, history shows that ups and downs are a natural part of economic cycles. Investors who stay calm, stick to their plan, and keep sight of their long-term goals tend to fare best over time.

But there are practical steps investors can take to regain a sense of control when the outlook is unsettled.

1. Reassess Your Risk Tolerance

Turbulent markets test emotional limits. If your portfolio matches your true risk tolerance (not just your most optimistic frame of mind) remind yourself that double-digit drops are not uncommon. Stick to your strategy and avoid selling at a loss.

2. Diversify Broadly

Spread your investments across asset classes: stocks, bonds, commodities and cash. Diversify by sector and geography too. To see a snapshot of how diversified you are currently, log into your dashboard, view your portfolio and click onto X-Ray.

And don’t forget to use your annual ISA allowance to make diversification tax efficient.

3. Focus on Quality

Prioritise strong, resilient companies with sound balance sheets and good cash flow. EQi’s Fair Value Estimate, powered by Morningstar, can help you identify undervalued opportunities. You can find the Fair Value Estimate once you search for an investment and click on ‘View’.

4. Use ‘Pound-Cost Averaging’

Instead of trying to ‘time the bottom,’ (which means trying to guess when the price of shares will stop falling), invest regularly. Consistent investing helps smooth the bumps, so you stay on track whatever the market mood.

5. Maintain a Long-Term View

Markets are volatile in the short term but have historically trended upward over time. Bear markets (declines of 20% or more from the last market high) have historically lasted on average 9–12 months, while bull markets (gains of 20% or more from the previous market low) endured over four years on [1]average.

Although the past is not a guide to future performance, seasoned investors understand that ups and downs are part of the journey. Backing your strategy helps align your investments with your long-term goals.