Four tips for investors in volatile times

Market turbulence can be a tricky time for investors to navigate. It’s easy to get caught up in the emotion of a market fall and have a knee-jerk reaction, such as selling investments or trying to time market moves. But it’s important to keep a level head in these times, avoid some of the market noise and stick to your investing plan.

Market volatility can be a good time to check that your portfolio is ready for periods of turmoil, it’s positioned correctly, and you’re happy with your spread of investments. For anyone who has sold investments or panicked during a market drop, it can be a good learning experience.

1. Is your mix of investments right?

If your first reaction to the market falls was to panic and sell, or if you feel put off investing altogether, then work out why. Did you have too much risk in your portfolio or too many assets in just a few investments? Or did you not fully understand what you were invested in and didn’t know how those investments would react in a market fall? Whatever the reason, if you work out why, then you can fix it without ditching investing altogether.

Even if you didn’t react to the market moves, the turmoil might have highlighted that your portfolio isn’t diversified enough. During a period of market volatility you’ll probably have some investments that drop in value considerably, and others that rise, remain stable, or maybe just fall by less. If everything in your portfolio dropped substantially, it might be a good reminder to spread your investments.

If you’re not confident doing that yourself, you could opt for a multi-asset fund, which spreads money around different asset classes for you. One option is the AJ Bell funds, which have different investment mixes depending on the level of risk you want to take.

2. Get your cash right

Make sure you get your cash levels right. If you’re just rushing to cash in panic because investment markets are falling, that might not be the right call for you. But if you realise that you didn’t have enough money to hand to easily access during the market falls, it might make sense to hold more cash. Money held in cash should be what you need in the short-term, plus the savings you don’t want to risk in the market.

Another option if you want to de-risk your portfolio is money market funds. These are funds which invest in cash-like instruments that can be converted into cash quickly. There are lots of options available, but you can also check out the Favourite funds list to see our invest team’s top picks.

3. Consider if direct stock investing is for you

Market drops can often highlight when your investment portfolio isn’t diversified enough or if your portfolio is too high maintenance. If you invest in a small number of individual stocks, if that stock falls in value, it will have a bigger impact on your portfolio than if you had a diversified mix of investments.

A period of market volatility could be a good trigger to think about investing through funds rather than buying stocks directly. You can have a mixture of direct stock holdings and funds, but just make sure you’re happy with the time and additional risk that comes with holding individual shares.

4. Set up regular investing

If you’ve been spooked by market falls and are worried about putting money into investments at the wrong time and being hit by the market falling again, you could set up regular investing.

By automatically putting money in on the same day every month, you take away the decision about when to invest in markets, and also take some of the emotion out of investing – which is a great way to stick to your overall plan. On top of that, you’ll benefit from buying regularly, meaning that sometimes you’ll buy at a time when markets are lower and you can get the investments for cheaper. At other times, markets will be higher and you’ll pay more. This is called “pound-cost averaging”, and the effect is that your average purchase price is smoothed out over time, which can help to boost returns.

How does pound cost averaging work?

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With our regular investment service, you can save as little as £25 a month into the investments of your choice. You can set it up by selecting the investments you want to buy and how much you want to invest each month, then you’re all sorted for every month to come.

Read more about regular investing