Stock Markets are volatile, should you invest or wait?
A common question at the moment:
‘Francis, stock markets are volatile, there’s uncertainty, should I be investing or wait till it ‘settles down‘?
More on the phrase ‘settles down‘ later.
Correct, stock markets are volatile.
So, is it a good time to invest if there is so much ‘uncertainty’?
What is volatility?
Firstly, let’s look at what volatility actually is.
Basically, volatility is the frequency and magnitude of stock price movements.
Both up and down.
Most days, the stock market doesn’t see big moves.
However, from time to time there can be significant price changes.
This is referred to as volatility.
In short, markets move up and down.
Market volatility is perfectly normal and an essential part of investing.
Why Invest?
Secondly, why should you be investing?
There are a number of reasons people should be investing.
The clearest reason at the moment is low-interest rates available from banks.
Inflation is another.
Tie inflation with low returns from banks, and the real value of your money decreases.
Understand the money illusion here.
Investing will allow you to grow your wealth.
Generate inflation-beating returns, and maintain the real value of your money.
When investing, we benefit from the power of compound interest, interest growing on interest.
Additionally, investing helps you to meet other financial goals.
Goals such as your pension, purchasing a house, getting married, building an emergency fund or future holiday plans.
So, with this stock market volatility, should you be investing?
Simply put, yes.
The best time to invest is when you have money to invest.
Importantly, you should be investing in line with a long term plan and strategy created for you.
This renders short term volatility (and financial media noise), pretty much irrelevant.
Irrespective of volatility, you’re investing to generate longer-term returns.
The stock market never really ‘settles down’.
There will always be events that will affect markets.
Events outwith your control and outwith my control.
You have to tune those events out and invest in line with your plan.
Markets are Cheaper
Stock market volatility can also present opportunities.
When markets are down, it’s cheaper to buy.
Therefore more bang for your buck.
The equivalent of walking into your favourite clothing store with promotions.
However, it’s important not to try and time the market.
Take a buying opportunity but don’t get caught up on the perfect time to go in.
Focus long term, it’s about time in the market.
Things to note
Think long term
No one should be investing for the short term.
Short term instruments are the bank and credit union.
When investing, you’re thinking long term, 4/5 years and beyond.
Short term stock market volatility washes out over the longer term.
So when markets get volatile, do nothing to your investments.
Don’t cash out through fear.
Ensure You Are invested in line with your risk tolerance, capacity for risk and investment objectives
If you work with a financial planner like ourselves, this box should already be checked.
However, it can be worth revisiting and updating.
This ensures your investments still match what you want to achieve.
And your tolerance for the investment journey.
Maintain a diversified portfolio
As per the above point, if you are working with us, this is a given.
Diversifying your portfolio can come in many forms.
It can be the split across asset classes of cash, bonds, equities, alternatives and property.
You can be diversified across sectors and geographical regions.
The main benefit of diversification is you do not put all of your eggs in one basket.
However, as much as it helps, it isn’t a magic bullet or secret sauce.
That’s important to remember.
Summary
Irrespective of how volatile stock markets are, how high they are or how low they are, the best time to invest is when you have the money.
There will always be events that affect stock markets.
Events neither of us can control.
What we can control is a plan for yourself.
A plan and strategy suited to your circumstances.
Trying to time the markets is folly.
A bell doesn’t ring at the top and a bell doesn’t ring at the bottom.
Invest when you can, tune out the noise and let markets work for you.
Above all, invest smartly!
How we Help
Do you have current investments or pensions?
Unsure as to how they are reacting in today’s market?
Maybe you’re just worried about the current market situation.
Are you new to investing and are wondering, when, if and where you start?
Whatever your situation, we offer a complimentary call at our expense.
This allows us to see if we can help you.
Get in touch
Either email me, francis@fortitudefp.ie or request a callback.
Give me a call on 086 0080 756 or access our diary here and book a call at your convenience.
Why not visit our insights.
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Our blog posts are intended for information purposes only and should not be interpreted as financial advice.
You should always engage the services of a fully qualified financial planner before entering any financial contract.
To discuss engaging the services of Fortitude Financial Planning please email us at info@fortitudefp.ie.
Fortitude Financial Planning Ltd will not be held responsible for any actions taken as a result of reading these blog posts.
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