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Seven tips for investing during volatile times

Coronavirus is out of everyone's control. Whether you are looking after your family, business or both there is enough to worry about let alone your finances as well. Brush up on our top tips for investing during volatile times to help reassure you so you can keep calm, even if everyone around you isn't.

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1. Advice is for life not just during tough times

The role of a financial adviser is to get to know your situation, your attitude to risk versus reward and then to navigate you towards your objectives. Everyone is a unique individual, your needs are different to everyone else’s and there is no substitute for a financial plan tailored to you. Plus, the benefits of financial planning are never more important during turbulent times. Financial advice helps you take the emotion out of investing and provides an objective view. It may just be the best investment you ever make.

2. Make a plan and stick to it

Like most things in life it is one thing to have a target but a sound plan can be the difference between hoping for the best and actually achieving your goals. A financial plan, especially one formulated by a consummate professional, will help you stay focused on your long-term aims without being distracted by short-term market changes. You should also endeavour to find a financial planner who will provide an ongoing service, so you can both monitor progress. A Chartered Financial Planner who will regularly review your plan will recommend ways to keep you on track with your goals.

3. Invest early, the magic of compounding

There is a reason Albert Einstein once said that compounding is the eighth wonder of the world. The magic of compounding allows investors to generate wealth through the reinvestment of earnings over time. Having your money invested just a few extra years can have significant impact on your investment portfolio. In the chart you will see two investors who put £10,000 in to global equities every year. Green Investor began in December 1999 and Grey Investor started five years later. Over 25 years Green Investor has accumulated savings of £595,763 compared to Grey Investor who has £386,190. That is an extra £209,573 extra for contributing to savings five years earlier.  If Grey Investor wanted to accumulate the same pot they would need to invest £15,427 every year.

4. Don't assume your money is safer as cash

Every investor should have some of their money in cash incase of emergency. When markets are volatile there is a temptation to put all your investments in the “relative” safety of cash. Some people see it as a “safe bet”. However, recent years have seen higher rates of inflation and lower rates of interest on your cash. The pressure inflation places on cash can be debilitating, at just 2.5% inflation an investor would lose nearly half of their purchasing power over 25 years. This means that £10,000 today would have the purchasing power of £5,394 in 25 years time. Historically, interest rates have normally outstripped inflation. Investing in a standard interest bearing bank account would have provided some protection against the ravages of inflation. However, looking forward interest rates are expected to stay below inflation. In the long-run not being invested can actually be riskier than being invested.

5. Diversify investments

When markets are fluctuating wildly it is no wonder people worry about the performance of certain investments while forgetting about the bigger picture. One tree with stunted growth doesn’t necessarily mean the rest of the wood isn’t thriving. Similarly, a diversified portfolio including a range of different assets can help to iron out the ups and downs.  There are also differences between geographical markets, which can reduce short-term volatility. These are all the sorts of things a financial adviser has knowledge on, they can ensure you have a diversified portfolio so to avoid exposing your portfolio to undue risk.

6. Short-term volatility is a characteristic of investing

When it comes to investment planning, knowing when to buy and when to sell is the secret of success right? Wrong, the truth is that no one knows with certainty when markets will rise or fall.  Trying to time the market is not only stressful but it is rarely successful.  From the Lehman Brothers collapsing in 2008, through to the Twin Towers attack in 2001 and then Brexit the markets face uncertain times on an ongoing basis. By investing sooner and longer you can improve your potential for healthy returns and achieve your financial goals, regardless of short-term “blips”. Historically, investors who have been willing and able to ride out the periods of decline in the markets have seen their investments recover. Investing for the long-term is the best way to reduce the impact of stock market fluctuations and see out periods of volatility. Short-term volatility is a characteristic of investing but over time the trend is a rising one.

7. Stay invested

When markets are volatile your first thoughts will be “Should I stay invested?” It is tempting to exit or switch to cash in an attempt to reduce further expected losses. No one knows when the markets are going to recover and being out of the markets for just a few days can have a devastating effect on returns.  Using global equities as an example, over the last 25 years an investor who puts £10,000 a year in to an investment and who stays in the markets throughout the period could have a potential return of nearly three times greater than that of an investor who missed the best 25 days.

Coronavirus support for businesses & self employed

Coronavirus has hit businesses in a way that no one planned for. The government have put together a series of measures to support companies affected by the pandemic. It is really important business owners utilise what financial support is out there for businesses during coronavirus.  Also read up on what support is available for the self-employed effected by coronavirus.

Article published: 26.03.2020

Past performance is not a guide to future performance and may not be repeated. Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may loose money. Exchange rates may cause the value of overseas investments to rise or fall. This communication is issued by Quilter Investors Limited and is for information purposes only. Nothing in this communication constitutes financial, professional or investment advice or a personal recommendation. This communication should not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the document.  Any opinions expressed in this document are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or companies within the same group as Quilter Investors as a result of using different assumptions and criteria.

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