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New Covid-19 variant – investment lessons to navigate volatility

With the new Covid-19 variant sparking a wide sell-off in global stock markets, we share our top investment lessons for navigating volatile markets.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The last two years haven’t been easy for investors. But so far this year, things have been looking up and the light at the end of the tunnel has been that much brighter.

The latest Covid-19 variant from southern Africa appears to have cast a shadow over the progress we’ve made so far though. There was a wide sell-off in global markets today as investors seemed spooked by the possibility of the new variant spreading.

Seeing your investments fall in value isn’t easy, and knowing what to do in times like this can be tricky. Do we change our investments or batten down the hatches?

While we’re still in the early stages of knowing what this could mean for the progress we’ve made so far, the message for investors stays the same – don’t panic. Market ups and downs are perfectly normal and when markets do swing, it pays to stay calm and not make any rash decisions.

There’s no one size fits all when it comes to investing and what to do will depend on your circumstances. But there are some basic principles that we should all follow when the waters start to get choppy.

This article looks at why long-term investing is so important but it isn’t personal advice. If you're not sure if an investment is right for you, please ask for financial advice.

Human nature can be costly

We’re emotional beings by nature, and investing can be a rollercoaster of emotions at times. There’s the thrill and excitement when the market goes up, but panic when it falls.

The way our emotions change during the highs and the lows is why lots of us decide to invest when markets are doing well and sell when markets are falling. This goes against basic, good investment practices like thinking long term.

Some investing do’s and don’ts to bear in mind:

  • You do want to find high-quality companies and investments at the right price that you can hold for a long time.
  • You do want to collect steady dividends or growth over the long term.

  • You don’t want to jump in and out of investments trying to time the market.
  • You don’t want to get swayed by short-term price movements.

Market falls and comebacks

Reading blaring headlines or seeing the value of your investments fall isn’t fun. It can be worrying. Sure, there have been some bumps along the way, but that’s the nature of investing.

Here are some of the biggest falls in value of the UK stock market since 1985 and how long it took to recover. For these examples we assumed you’d invested at the highest point before the market started to fall.

UK stock market performance following drops

Past performance isn’t a guide to future returns. Source: Thomson Reuters Eikon, 19/07/2021. Where no figures are shown data is unavailable.

The key point to all of this is tough times don’t last forever, and markets eventually recover.

It’s important for investors to think back to their long-term strategy and stay resilient when markets are jittery. Make sure you’re happy with the level of risk across your investment portfolio – the more risk you take on, the bigger the potential drops.

When markets are on a downturn, you could see this as an opportunity to top up your investments at lower prices. Of course, there are lots of factors that can change an investment’s price. It’s essential to do your research and decide why the investment price is low, and if it can recover later on.

You don’t know what’s around the corner. But holding onto these investments instead of impulsively selling, might benefit you in the long run when prices eventually recover.

Diversification is key

If you’re regularly dipping in and out of the same investment to try and benefit from the highs and lows, you open yourself up to more risk from a lack of diversity in your portfolio.

Diversification is an investing essential to help manage any bumps in the road.

We use diversification to help smooth out the ups and downs a portfolio could go through if you hold just one, or a few investments. Whether it’s types of companies, types of investments – like shares, bonds, and property – different parts of the world, or investment styles. There are lots of ways you can do it.

Picking individual companies isn’t always the answer – it’s certainly not the easiest way – to start diversifying. An alternative investment option is funds, where professional fund managers make the underlying decisions and choose a selection of investments. It is important to regularly review all your investments to ensure they meet your objectives and attitude to risk.

More on diversification

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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