In simple terms, volatility is the erratic up and down movements often seen on financial charts.
It’s something you may have heard fund managers talk about – they demonstrate that their fund doesn’t have the move up and down as much as the index they are trying to match or the objective return of the fund.
Over the last decade we have generally seen markets move up, there have been some big movements down, but they have recovered quickly. These recoveries are what traders and fund managers call corrections.
We have recently seen a move in the FTSE Index of over 30% down. Anything over 20% is considered a bear market and steep falls can be unnerving. Whilst traders can make and lose a lot of money on the volatility, we are not traders. We are not trading in and out of the market. You and I are investors, we invest with the aim of meeting our financial objectives and hope to get a compounding effect of income and capital rolled up into our investment pot for use longer term.
The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Is it the time to sell?
Markets generally go up in measured smooth lines but fall quickly, so at times like these, as an adviser I’m often asked “is this the time to sell? I would always discuss with clients their financial objectives, timeline and when they invested. Markets are very volatile at the moment and taking money out could see you crystallise at a lower price. That’s not saying markets can’t go lower, that is still possible, and they did in 2008/2009.
Should I invest now?
Historically you could say yes, markets look cheap compared with valuations just a few months ago, but again they can go lower. Can you emotionally take that risk, never mind financially.
In both these scenarios you need to ask yourself how would you feel if markets went against you, after you had bought, or sold. What is your personal capacity for loss, can you take the loss or do you have the time to see markets recover?
If you have investments and or pensions invested, these times can be worrying. At Temple we discuss with you your understanding and experience of the financial markets, give guidance and help in finding the right solution, this is matched to your personal attitude to risk and evaluating your ability to take losses. When we have knowledge and understanding of the risks we are taking it can remove our concerns at these volatile times.
If you are worried about recent market volatility you may need to talk to an independent financial adviser. you can contact one of Temple Wealth’s advisers through our Facebook page, Contact Us page, or by calling the office on 01329 282882.