Six tips for managing volatile markets

When financial markets become unstable, it pays to have an investment plan that you are comfortable with.

Market downturns may be unsettling, but history shows stocks have recovered and delivered long-term gains. This is not the first time that markets have gone down!
For example, in the United States, over a 35 year period, the stock market fell 14% on average from high to low each year, but still managed gains in four out of 5 calendar years¹.
Over the last 25 years (through the end of 2019), the United Kingdom’s stock market has made losses in over 5 individual years, whereas shares held over at least a 10 year period would have only made losses in 2% of instances (or 4% in the case of global equities)².

Your mix of stocks, bonds and short-term investments will determine your potential returns, and the likely swings in your portfolio (which may be larger the more risk you take on).
Pick an investment mix that aligns with your goals, timeframe, financial situation, and tolerance for risk. If you take on more risk than you are comfortable with, and the market takes a downward turn, it could cause you to react quickly and that may or may not be the best move.

It can be tempting to try to sell out of investments when the market is down, but it’s hard to time it right, and sometimes that approach can lock in your loss.
If you sell and are still out of the market during a recovery, it can be difficult to catch up. Missing even a few of the best days in the market can significantly undermine your performance. For example, an investor who missed the best 5 days in the China market (based on the Shanghai Composite Index) each year over a 20-year period (between 1996 and 2015) would have missed out on 2% returns per year on average, versus a 10% average annual return of being fully invested.³ Looking at global equity markets over a 15 year period it’s a similar story; around 3.5% lost annual returns on average by missing the best 10 days in the market each year.⁴
Having a long-term plan that aligns to your time horizon, goals and risk tolerance is one way to manage through volatile markets.

Investing a small amount on a weekly, monthly or quarterly basis over time is an approach many use, rather than trying to time the market. A consistent investing approach helps to avoid making short-term decisions spurred by market volatility.
Consider setting a plan for regular automatic investments, this can help to keep you on track with your long-term goals rather than focusing on daily market fluctuations.

While it can be hard to ask for help, many people seek guidance from financial advisers when it comes to investing. If you’re like most people, your life may be quite busy and you may not have the expertise or time to do the research on which investments may be right for you. Seeking the help from a professional can help to guide you to a strategy that aligns with your goals, time horizon and risk tolerance.
Whether the market is up or down, it’s important to meet with your adviser regularly, but at least annually to discuss any changes to your goals, time horizon and risk tolerance. This can help you focus on your long-term goals rather than short-term market movements.

If you don’t have the skill, will, or time to choose your own investments, there are options available that offer professional investment management. This approach can give you the support you need if you are not comfortable managing your portfolio on your own.