Trying to navigate the ups and downs of market returns, investors seem to naturally want to jump in at the lows and cash out at the highs. When markets fall, the natural instinct is to sell. But no one can predict when those will occur. Investors that attempt to follow a market timing strategy are exposing themselves to a considerable amount of risk.
Market timing is an investment strategy that attempts to capitalise on market fluctuations in order to obtain higher returns or lower risk. In practice timing the market is notoriously difficult. It can also be costly and seldom works.
Fortunately, there are a number of time-tested strategies that may help you deal with market volatility without trying to predict future market movements. Time is one of the best assets that many investors have.
Two of the most prevalent are: invest for the long-term, and maintain realistic performance expectations when it comes to returns.
Proper portfolio diversification
By coupling these strategies with maintaining proper portfolio diversification and avoiding the pitfalls of market timing, you will have the foundation needed to help manage your overall exposure to market volatility.
Historically, the stock market has been up more than down. Often after a lengthy bull (rising) market, some investors may lose sight that their investments could generate negative returns. In order to keep market volatility in perspective, it is important to maintain realistic expectations about your investments, especially if returns move closer to their historical average.
Focus on long-term goals
It is important to focus on your long-term goals and not become distracted by short-term volatility. While losing money in the financial markets is never easy to accept, remember the old adage, time is on your side.
Typically, the longer an investment portfolio is held, the more likely overall positive results are realised. Investing at regular intervals is an effective and potentially less stressful approach to building wealth over the long run.
The lesson here is to prepare for the long haul and try not to overreact to periods of uncertainty.
- Discretionary Fund Managers
- Market timing
- Minimising risk
- Multiple asset classes
- Portfolio insulation
- Pound cost averaging
- Principles of investing
- Children’s pensions
- Defined benefit (or final salary) pensions
- Defined contribution pensions
- Personal pensions
- Self-Invested Personal Pensions (SIPPs)
- The state pension
- Annual allowance and lifetime allowance limits
- Busting myths about pensions
- Increases to pension age and new normal minimum pension age
- Pension freedoms
- Pension withdrawal methods
- The lifetime allowance
- Delaying retirement
- Generating income from investments throughout your retirement years
- Importance of a retirement wealth check
- Retirement goal setting
- Retirement planning
- Reviewing your retirement plan
- Staggered retirement
- Taking control of your retirement plans
- What can I do with my pension?
- What happens to my pension on death?
Growing your wealth
Goals based investing
- Cash flow modelling
- Creating a financial roadmap
- Investment objectives
- Timescales and market activity and the impact of losses
- ‘What if’ scenarios
- Discussing legacy planning with your loved ones
- Inheritance Tax (IHT)
- Inheritance Tax Residence Nil Rate Band (RNRB)
- Lasting power of attorney
- Lifetime transfers
- Making a Will
- Preserving wealth for future generations
- Protecting your assets for the next generation
- Slicing up your wealth pie