INVESTMENT MATTERS
THE BEST DEFENCE FOR VOLATILE MARKETS –
A Properly Structured and Well Diversified Portfolio
Financial markets do not move in a linear fashion but instead move up and down. One of the questions most frequently asked is whether market volatility is something investors should worry about. The simple answer is that although we have seen great short term market movements in recent years, provided one has a long term investment horizon, there should be little to fear from this. Trying to time entry and exit to financial markets is exceedingly difficult and rarely achieves its aim in volatile markets, whilst remaining invested for the long term can bring rewards for patient investors.
However, in the absence of proper portfolio planning, investors might have to crystallise losses when markets are falling, if there is a need for income or capital from investments; the alternative being to wait for markets to recover, which might be unacceptable. With a properly structured portfolio, however, income and capital requirements can be planned ahead on an ongoing basis, removing these difficulties and ensuring that money is available as and when required. Additionally, investments can be made in a tax efficient way when a portfolio is suitably structured.
What also matters is that there is a clear investment strategy which reflects objectives and risk tolerance and that sufficient asset class diversity is present to avoid the‘ all eggs in one basket’ syndrome. A well diversified portfolio will include allocations to different asset classes and different geographies in order to spread risk and to produce a variety of returns at different times. If one investment performs poorly, it may be offset by another investment with superior performance. Diversification is not, however, a guarantee of certain returns or a guarantee against loss but having an asset allocation that is tailored around your goals and risk tolerance may help reduce volatility and fluctuations.
Diversification is a powerful investment strategy and a properly structured portfolio can bring confidence in the midst of market volatility.
NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THIS ARTICLE IS BASED ON OUR CURRENT UNDERSTANDING OF LEGISLATION, WHICH CAN BE SUBJECT TO CHANGE. THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND.
Stuart D Bryant is a fee-based Certified Financial Planner, specialising in personal lifestyle planning and investment planning. SDB Strategic Planners Limited is authorised and regulated by the Financial Conduct Authority.
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