When uncertainty strikes, financial markets often respond with a period of volatility. It can be difficult to remain pragmatic and unruffled when asset prices are swinging back and forth. Nevertheless, it’s important to keep your head and focus on the facts, not the hysteria.
- Ensure your portfolio is properly diversified
- Crises can create opportunities
- Focus on the long term
When uncertainty strikes, financial markets often respond with a period of volatility. It can be difficult to remain pragmatic and unruffled when asset prices are swinging back and forth. Nevertheless, it’s important to keep your head and focus on the facts, not the hysteria.
“It’s never the wrong time to review your portfolio”
Review your portfolio: what’s right for you?
It’s never the wrong time to review your portfolio. During periods of market volatility, it’s a good idea to take the time to assess your investments: has your situation changed since your last review? Does your portfolio still reflect your priorities and your tolerance for risk, and is it constructed to meet your long-term objectives?
Are you diversified?
Take a moment to ensure that your portfolio is properly diversified. Different asset classes tend to perform well or badly at different times. By spreading your portfolio across a range of asset classes, you reduce the risk that bad performance from a single investment or asset class will have a disproportionately negative effect on your entire portfolio.
Consider some international exposure
It’s worth considering your exposure to international markets. For many UK-based investors, a UK-focused portfolio seems a sensible and logical choice: sterling-denominated investments and familiar names provide a welcome degree of comfort and reassurance. On the other hand, a UK-centric portfolio – even one with plenty of exposure to the major multinationals – will leave you particularly susceptible to fluctuations in domestic sentiment. Branching out into international markets – particularly via a diversified collective investment scheme such as a unit trust or OEIC – can help you to reduce your portfolio’s vulnerability to domestic UK developments.
Grab an opportunity
It’s an old adage that crises create opportunities. If markets are falling wholesale, the share prices of good-quality companies often suffer alongside their weaker peers. This provides cool-headed investors with the opportunity to enhance their portfolios with high-quality stocks at bargain prices.
Keep calm and carry on…
Above all, it’s vital that you don’t panic. It’s quite a challenge to remain calm when you’re faced with dramatic news headlines and pundits prophesying doom. Nevertheless, take a step back: if you are investing over the long term, you have to expect some rough times along with the smooth. If your portfolio is well diversified and constructed to reflect your goals and priorities, you shouldn’t allow yourself to be blown off course by periods of short-term uncertainty.
