Staying calm in the Storm: Market Volatility
Financial markets often experience periods of volatility, and it’s tempting for investors to react emotionally and cash out when markets drop in an effort to protect their wealth. In August this year, financial markets reached their highest volatility since Covid-19, with rapid drops seen in the NASDAQ and S&P500 indices, leaving many investors nervous and eager to sell and get out of the market. However, this instinct may not be beneficial to an investor’s long-term financial goals.
Our instinct for ‘flight to safety’ can pressure us to sell when markets fall, driven by fear rather than rational strategy. Moreover, we tend to feel losses more acutely than we enjoy gains, leading to heightened fear, waiting for further declines that may never happen. The constant flood of negative news, especially during volatile periods, exacerbates this. Reports of market losses can cloud an investor’s judgment, despite the common reality that financial markets usually recover over time. For instance, while the S&P500 has experienced average intra-year declines of 14.2% over the past 44 years, 33 of those years still ended in positive territory.
Volatility is an inherent feature of investing, and reacting impulsively to short-term fluctuations may often harm long-term returns. A well-diversified portfolio, aligned with your risk tolerance, helps to navigate these periods and ensures you don’t have to sell in a downturn.
It can be extremely helpful to consult an expert who fully understands the trends in the market and can reassure you in times of market volatility and guide you to make fully informed smart decisions about your investments. Our Financial Advisers offer a wealth of experience to navigate the whirlwind of reports and educate on the realities of the market.
Book a meeting or phone consult with one of our Financial Advisers below if you would like to explore your investment potential or review your current position. And as always, do not hesitate to reach out if you have any concerns or uncertainties about your investments.