Investor tips for navigating market volatility and uncertainty

Don’t be afraid to take some risk off the table, or hold more cash than usual, writes Mark Lister. Photo / 123rf

• Investors should stay calm, avoid panic and consult advisers for guidance during market volatility.
• Consider de-risking by holding more cash and adding conservative assets like fixed income.
• Maintain a diversified portfolio and take opportunities during market downturns, especially for long-term goals.

It’s been a very volatile few weeks for investors, and some asset classes have fallen heavily amid the uncertainty.

All market declines are different and it’s impossible to say when or where this one ends.

However, here are a few suggestions for navigating this one.

Resist the urge to panic.

One important piece of advice is not to panic.

It’s hard not to feel overwhelmed by all the negative news we’re hearing, but we don’t make our best decisions when we panic.

Stay calm, take a step back, and lean on your adviser for support and guidance. This is when they earn their keep.

Don’t be afraid to take some risk off the table, or hold more cash than usual.

There’s nothing wrong with a bit of de-risking, especially if you’re sitting on strong gains, if your riskier assets have grown to represent a larger part of your portfolio than intended, or if it’ll help you sleep at night.

Holding more cash than usual can also be wise.

If things remain volatile (or get worse), having a bit of dry powder means you can take advantage of opportunities that arise.

Consider adding to your conservative assets.

With yields of more than 4% available for good-quality securities, fixed income is still offering reasonable returns.

While interest rates have fallen from recent levels, if an economic slowdown (or recession) ensues, they could easily go lower.

Those periods typically go hand-in-hand with lower rates, so a bond portfolio might even deliver some capital gains in the period ahead.

Within shares, it’s not too late to de-risk your portfolio.

Every sell-off comes against a slightly different backdrop, but some parts of the market have traditionally held up better than others.

There have been four recessions in the US since 1990 and two sectors have proved most resilient, outperforming the broader market on all four occasions – consumer staples and healthcare.

At the other end of the spectrum, financials and technology have (on average) been the laggards during those four periods.

You don’t want to sell out of one sector at the bottom and buy another near the top, but some portfolio fine-tuning might help you prepare for any further bad weather.

If your investment objectives haven’t changed, neither should your strategy.

Most of us are investing in the hope of meeting our long-term objectives, which are usually some 10 or 20 years into the future, sometimes even longer.

With that in mind, it makes little sense to react to weekly, monthly or even yearly volatility.

We know that over longer timeframes growth assets like shares (or property, for that matter) will deliver strong returns with remarkable consistency.

Investing isn’t about chasing the ups and downs of the market, it’s about managing a well-constructed portfolio in line with your goals and objectives.

Stay diversified, rather than being at extremes.

Economies, markets and currencies ebb and flow, so hedging your bets across different asset classes, geographies and sectors is the most sensible approach for most of us.

Yes, being fully invested in shares opens you up to the full force of volatile periods, but you’ll do yourself just as much of a disservice by being too conservative.

Be willing to take opportunities among the carnage.

We all want to pick our moment to snare a bargain, but don’t sit on the sidelines waiting for the stars to align perfectly.

They never will, and markets can rebound strongly when you least expect it.

If you’re too cautious, you’ll remain in portfolio limbo and miss out on the recovery.

That’s an important point for newer investors to remember.

For those in the accumulation phase of their investment journey with many years until retirement, volatility and weak markets are your friend.

In fact, you could almost argue that (for those people) the lower prices go, the better.

We never know what’s around the corner for financial markets, but if you’re building a portfolio (rather than winding one down) you must be willing to take advantage of the weakness.

Take your time and do so in instalments, but do something.

• Mark Lister is off next week.

Mark Lister is Head of Private Wealth Research at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.