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Seven tips for investing in volatile times & diversifying your portfolio

In an ever-changing world, volatility has become the new norm. From geopolitical tensions and economic uncertainties to the rising cost of living and ongoing conflicts, investors are continuously navigating choppy waters. This makes it more critical than ever to have a diversified investment portfolio. Here are seven tips to help you invest wisely during these unpredictable times.

Find out more about investing in our ultimate guide

Diversify your investments

One of the most effective ways to manage risk is to diversify your portfolio. This means spreading your investments across various asset classes, such as stocks, bonds, property and commodities. Each asset class behaves differently under various economic conditions, so diversifying reduces the risk that a downturn in one sector will drastically affect your entire portfolio. For example, while stocks might be experiencing volatility, bonds typically offer more stability. Property can provide income and hedge against inflation, while commodities like gold often retain value during market upheavals. There are a lot of property owners selling up right now because their portfolio is lacking diversification. A well-diversified portfolio can smooth out returns over time and help protect your investments against unforeseen market shocks.

Focus on quality investments

In volatile times, it’s essential to prioritise quality. High-quality investments are typically those with strong fundamentals, such as companies with robust balance sheets, stable earnings, and a history of weathering economic downturns. These companies often have a competitive advantage in their industry, strong management teams, and a proven track record of delivering shareholder value. High-quality bonds, such as those issued by financially sound governments or corporations, can provide stable income and lower risk. By focusing on quality, you can create a more resilient portfolio that is better equipped to handle market fluctuations. If all of this sounds too complicated that is why it is important to work with a highly qualified, experienced financial adviser, one of the many benefits of financial advice.

Maintain a long-term perspective when investing

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. There are two investors who put £10,000 in to global equities every year. Investors One began in December 1999 and Investor Two started five years later. Over 25 years Investor One has accumulated savings of £595,763 compared to Investor Two who has £386,190. That is an extra £209,573 extra for contributing to savings five years earlier.  If Investor Two wanted to accumulate the same pot they would need to invest £15,427 every year.

Market volatility can tempt investors to make hasty decisions, often driven by fear or greed. However, it’s crucial to maintain a long-term perspective, especially during turbulent times. Historical data shows that markets tend to recover over time, and those who stay the course are often rewarded. Instead of reacting to short-term market movements, focus on your long-term financial goals and investment strategy. This approach requires discipline and patience but can help you avoid the pitfalls of market timing. This is another reason clients work with us because having someone there who can support you through the peaks and troughs but also hold you accountable to your plan is invaluable. Remember, successful investing is not about getting rich quickly but about growing your wealth steadily over time.

Keep an eye on inflation

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. With the cost of living rising, inflation is a key concern for investors. Inflation erodes the purchasing power of your money, making it essential to consider investments that have the potential to outpace inflation. Whilst property can be an excellent hedge against inflation, as property values and rental income often increase with rising prices, it is essential you do not have all your eggs in one basket. Commodities, like gold and silver, typically hold their value during inflationary periods. By including different types of investments in your portfolio, you can help preserve your purchasing power over the long term.

Consider defensive investments

Defensive investments, such as utility stocks, consumer staples, and healthcare companies, tend to perform better during economic downturns. These sectors provide essential goods and services that people continue to use regardless of the economic climate. For instance, utility companies supply electricity and water, consumer staples include food and household products, and healthcare companies provide medical services and products. These investments can offer more stability and steady income during volatile periods. Additionally, dividend-paying stocks in these sectors can provide a reliable income stream, which can be particularly valuable during times of market turbulence. If your money is in a discretionary managed portfolio then the investment manager will have the skills and experience to make buying and selling decisions for your account based on what is happening in different economies around the world.

Consult a Financial Adviser

The changes are that if you are reading this article you might be considering whether you managing your investments is the best idea. Navigating volatile markets can be challenging, even for experienced investors. Whilst a wealth manager or investment adviser can provide sound advice on your investments, a financial adviser can provide personalised advice inline with all the areas of your finances that need managing. A financial adviser can help you develop a strategy tailored to your specific needs and risk tolerance. They can assist in creating a diversified portfolio, selecting high-quality investments, and maintaining a long-term perspective, taking in to account not just building and maintaining wealth but other parts of your life that need managing for you to be financially secure. Moreover, using a financial adviser for investment planning can help you stay disciplined and avoid emotional decision-making during turbulent times. By working with a professional, you can gain access to expert insights and strategies that can enhance your investment outcomes and provide peace of mind.

 

 

Navigate volatile markets with confidence

In today’s unpredictable world, volatility is a constant. Yet, diversifying your portfolio, focusing on quality investments, maintaining a long-term perspective, and staying informed, can help you navigate these challenging times more effectively. Remember, the key to successful investing in volatile markets is to remain patient, disciplined, and adaptable. By following these seven tips, you can build a resilient portfolio that withstands market fluctuations and secures your financial future.

Author: Cherie-Anne Baxter-Blyth

Date Written: 7th August 2024

Updated: 7th August 2024

Approver: Quilter Financial Limited TBC

Risk Warnings

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.

The figures in this article are correct on the day the article was published or updated.

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