INVESTMENT MATTERS
THE BEST DEFENCE FOR
VOLATILE MARKETS –
A Properly Structured and
Well Diversified Portfolio
inancial 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
F
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