It’s been a tumultuous time, filled with strikes, ultra-low confidence in our leaders, and record-high mortgage rates. And it's no surprise that all this turmoil has shaken investor confidence.
There’s always the risk with investing that you could get back less than you put in, and watching your investments go up and down in value can be disconcerting.
But at times like this, it’s important to take a level-headed view. Here are six tips to help you on your journey.
1. Remember stock market volatility is normal
The stock market is often volatile and can react sharply to global economic events. But that doesn’t mean investors should.
Remember that the market reflects other people’s feelings. It’s how millions of other investors perceive the value of a stock at that moment in time. It’s normal that it goes up and down. In challenging times, it’s important to remember that short-term popular opinions are not always correct over the long term.
2. Invest for the long term
Investing is a marathon, not a sprint. Long-term investing can help ease any stress when share prices are volatile, because they have more time to ride out the ups and downs of the stock market. However, there’s no guarantee that this will happen. If your investments drop in value, you could get back less than you put in.
Long-term investors can also benefit from compounding. Compounding works by reinvesting returns over time. If the investment performs as expected, it works like a snowball rolling down a hill, getting bigger and bigger the longer an investor keeps investing.
3. Don’t panic
Although it may be tempting to follow the herd and avoid losses, reacting to market events is rarely the right answer. In times like these, it’s important to stay measured and remember the long-term strategy.
If investors panic and rush to sell their investments, they could be selling at the wrong time and miss out on any recovery.
It’s not a bad idea to reassess your investments in light of current events. Try to focus on whether your investments are still right for your circumstances and goals, rather than what’s happening in the immediate.
4. Aim for diversification
Aiming for a diversified portfolio lowers an investor’s overall level of risk. That’s because spreading investments between many different companies and geographies means they won’t put all their eggs in one basket. If one company or sector fails, other areas of the portfolio might not be impacted quite as much and could even be working to counteract the losses.
An easy way for investors to diversify their portfolio is by picking an investment fund, rather than investing in individual shares. An investment fund includes many different companies and geographies. For example, the Triodos Pioneer Impact Fund spreads its investments across companies in the US, Japan and Europe. It also invests in several sectors including technology, healthcare, and industrials.
5. Consider an active fund manager
Knowing an active fund manager is in the driving seat can take some of the pressure off when it comes to worrying about stock market volatility. The fund manager will use their expertise to react strategically to changing market conditions, and make informed decisions on behalf of the investor.
Investment management companies, like Triodos Investment Management, actively manage investment funds. Their fund managers keep an eye on economic, social, and ecological developments and monitor individual investments. If global economic conditions change or an investment is underperforming, they can assess what action to take.
It’s important to remember that fund managers don’t get it right 100% of the time and there’s no guarantee that they’ll make money or beat the market. They’re also not making their investment decisions based on your individual circumstances and risk tolerance.
6. Be a principled investor
Although the past years have been stressful, there is one silver lining. Spurred on by the energy and cost of living crisis, our 2023 ISA survey found that nearly 3 out of 4 people in the UK believe we need to invest in long-term solutions to the issues facing the world.
Investing sustainably could also be a smart investment decision as well as a moral one. Good With Money’s October 2022 review found that responsible funds have continued to outperform their traditional counterparts over the last five years.
An easy way to do this, while benefitting from tax-efficient investing is to opt for an ISA which meets your ethics. When your money aligns with your values, you can truly make a difference to the world.