Volatile stock markets seem to be prevalent right now and this can make some wary of making long term investments, in pensions, for example. This is the second of two blogs on the topic of volatile stock markets. In both articles I’m attempting to answer 6 key questions:
- Just how volatile are stock markets right now, at the end of 2019?
- Is volatility a normal feature of these markets?
- How important is confidence as a determinant of volatility?
- Should investors react to long term trends or short-term volatile stock markets?
- Are there any specific factors affecting UK equities?
- What should investors do when stock markets are volatile?
The first piece examined the first three questions, see it here, so without further ado, let’s look at the others.
Should Investors React to Long-Term Trends or Short-Term Volatile Stock Markets?
The answer to this depends your attitudes to risk and whether you’re an experienced investor or not. Of course, while short term swings in value can create opportunity to profit quickly, they can also offer a route to quick losses. I generally advise people that are not experienced investors to look at the long term. In the long run, returns are generally good. I believe in leaving investment decisions to professionals and in selecting funds based upon an individual’s risk profile.
Professionals use a variety of means to manage risk. These include diversified portfolios and investing in different markets.
Are there any specific factors affecting UK equities?
All stock markets work in similar ways. Markets nowadays are global rather than being entirely local in nature, and the UK stock market is no exception. All markets will react to economic growth, interest rates, stability, confidence, expectations, price to earnings ratios and related markets. And it’s the peculiarities of these for the UK market that can deliver UK-specific movements. So, a change of government can affect the UK stock market, just as currency movements
Economics Help offer a good, succinct summary of the factors that influence stock market prices.
What Should Investors do When Stock Markets are Volatile?
Hopefully, by now you can see that volatile stock markets are normal behaviour. If you’re not a professional investor yourself, I recommend that you let a professional investor work for you. In the long run, stock markets have been shown to deliver good returns, even though that long-term is made up of a series of volatile short-terms.
When investing for your future income, it’s worth considering the long-term experience of professional investors. How effectively have they handled volatility in the past, albeit with the usual disclaimer that the past may not be a good guide for future performance.
I can help you choose by learning about what’s important for you and recommending funds that match your profile.