Global markets have been jolted this week as escalating conflict in the Middle East rattled investors and pushed energy prices higher. Strikes involving the US, Israel and Iran – and fears over disruption to oil flows through the Strait of Hormuz – triggered a risk-off reaction across global markets.
Oil prices rose as investors assessed the potential for supply disruption, while investors rotated into perceived safe havens like the US dollar. Stock markets across Asia and Europe fell as investors digested the risk of higher energy costs feeding through to inflation and interest rates.
This article isn’t personal advice. Remember, investments rise and fall in value, so you could get back less than you invest. If you’re not sure if an investment’s right for you, ask for financial advice.
Investing is for the long term
Geopolitical shocks like these can be unsettling for investors, particularly when they trigger sudden market movements. But they’re also a reminder of a core investing principle – volatility is a normal feature of markets.
Over time, markets have repeatedly navigated wars, political upheaval, pandemics and financial crises.
For investors approaching the end of the tax year and considering how to use their ISA allowance, it’s worth taking a step back from the daily headlines and focusing on the longer-term principles that underpin successful investing.
Because investing is for the long-term, and compounding is your best friend. Short-term market swings – whether driven by geopolitical tensions, political surprises or shifts in technology – can feel dramatic in the moment. But investors are investing for years, not weeks or months.
Viewed through that longer lens, sudden market moves become part of the journey rather than a reason to panic. Over time, the compounding of returns can be a powerful driver of wealth creation, which is why staying invested is often more important than trying to time the market.
Variety can smooth the ups and downs
Diversification is another key tool for navigating uncertain markets. Individual shares or bonds can be highly volatile, particularly during periods of stress. Funds, which hold a range of underlying investments, can help smooth some of that volatility by spreading risk across multiple companies or issuers.
Investors can go further by holding a mix of funds that invest in different regions and sectors. A portfolio exposed to the US, Europe, Asia and emerging markets, for example, reduces reliance on any single economy.
Likewise, investing across asset classes like equities, bonds and commodities can help cushion portfolios from sharp moves in any one area of the market.
For more cautious investors, there are also funds designed specifically to shelter capital. These funds typically focus on reducing the size of losses during market downturns instead of maximising growth in rising markets. That doesn’t mean they will never fall in value, but the aim is that any losses should be smaller than those experienced by more aggressive growth strategies.
It doesn’t have to be complicated
Ultimately, the most important step is simply to be invested. A well-constructed portfolio – diversified across regions, sectors and asset classes – is better positioned to weather market shocks and benefit from a range of different economic environments.
Periods of heightened volatility can be uncomfortable, but they’re also a reminder of why diversification and a long-term perspective matter. By focusing on these fundamentals rather than daily market movements, investors give themselves a better chance of achieving smoother progress towards their financial goals.
3 fund ideas for volatile markets
Investing in these funds isn’t right for everyone. Investors should only invest if the fund’s objectives are aligned with their own, and there’s a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.
For more details on each fund and its risks, use the links to their factsheets and key investor information.
For global stock market exposure
T. Rowe Price Global Value Equity
Aims to deliver long-term growth by investing in companies across the globe.
It uses a value investing approach, picking stocks that may have had some recent challenges, but the manager believes still has good long-term prospects.
Invests in around 80-100 global companies and is currently biased towards sectors like financials and technology. From a regional perspective, the fund invests most in the US stock market.
The manager has the flexibility to invest in emerging markets and smaller companies, both of which can increase return potential but add risk.
For diversifying with bonds
JPM Global Bond Opportunities
This fund leans on JPMorgan’s global fixed income capabilities.
It aims to achieve a balance between income and capital growth over the long term, while giving investors returns similar to the broader global bond markets.
It typically invests in more than 1,000 individual bonds, invested across 15 different parts of global fixed income markets, from over 50 different countries.
Invests in high yield bonds, emerging markets, currencies and the use of derivatives, all of which add risk.
For a more conservative option
Troy Trojan
Aims to grow investors' money steadily over the long run, while limiting losses when markets fall.
Invests in a mix of investments across shares, bonds, commodities and currencies and includes some of the world's best-known and highly recognisable brands. Although the fund hasn’t invested much for several years, the managers have the freedom to invest in higher-risk smaller companies.
Has the potential to provide some ballast to a more adventurous investment portfolio.
While the fund contains a diverse range of investments, it’s concentrated. This approach means each investment can contribute significantly to overall returns, increasing risk.
Annual percentage growth
28/02/2021 To 28/02/2022 | 28/02/2022 To 28/02/2023 | 28/02/2023 To 29/02/2024 | 29/02/2024 To 28/02/2025 | 28/02/2025 To 28/02/2026 | |
|---|---|---|---|---|---|
T. Rowe Global Value Equity | 9.98 | 8.32 | 11.02 | 13.60 | 30.96 |
IA Global | 6.96 | 2.01 | 12.40 | 9.69 | 13.07 |
JPM Global Bond Opportunities | -1.87 | -2.48 | 4.07 | 6.03 | 8.60 |
IA Sterling Strategic Bond | -1.66 | -7.37 | 5.66 | 7.26 | 6.80 |
Troy Trojan | 12.80 | -2.37 | 3.25 | 9.26 | 8.99 |
UK Retail Price Index | 8.18 | 13.84 | 4.53 | 3.41 | 3.15 |