Over the last few months we have seen a lot of volatility in investment markets. This will have come as a shock to many people who have only invested in the past few years as stock markets have shown positive returns since the big crash of 2008.
It is often cited that ‘uncertainty’ causes volatility in investment markets which often leaves investors feeling vulnerable. A natural reaction is to consider a switch into cash to wait until the uncertainty passes and the markets become less volatile. This may seem a sensible approach. However, for this strategy to work there are two things that need to happen. Firstly, values must continue to fall and secondly, and perhaps more importantly, a decision must be made to reinvest at some time in the future.
None of us have a crystal ball that tells us when the fall in markets has stopped and it could lead to reinvestment being made at a higher level.
What is more important is to think about how your financial situation will be affected. Think about your appetite for risk. When you first invested you will have taken into account that higher risk could lead to periods when values drop. Wherever you decided was appropriate to invest will reflect your individual attitude to risk.
Trying to second guess investment markets is pretty much impossible. You are much better served sticking to your objective and evaluating your attitude to risk avoiding knee jerk decisions. It is never nice to see the value of investment drop but the focus should be on original goals. To put things in perspective, if the value of your house falls you don’t immediately sell it. The same principle should apply to investments otherwise you should think hard about what you are happy to invest in.