Investing in a volatile market

 

Looking at the markets

Looking back at the behaviour of financial markets, there have regularly been periods of volatility influenced by various factors. From political uncertainty, around Brexit to the recent uncertainty created by the outbreak of the coronavirus, which is impacting the global economy.

Markets do not like uncertainty, and this usually has a greater impact on more risky assets such as equities.

There has seen some very large falls across global equity markets on increased fears of a global recession as countries gradually go in to lock-down to beat the virus. Global central banks and governments have taken various unprecedented measures to support their economies and help calm financial markets. During this time the markets have seen some success with markets recovering, in particular, on 24th March 2020 the London Financial Times Stock Exchange (FTSE) 100 posted its biggest daily increase since the 2008 financial crisis, rising more than 9%.

 

What should you do?

Our general advice is to keep calm and think of the medium to long-term investment. You may think the best option is to take your money or switch to cash, when often the best decision you can make is to continue as you are. As the markets have crashed, so have unit prices, meaning that you can now buy more units for less, which could be more beneficial in the long-term.

By investing in Stocks and Shares with us, it provides the opportunity for growth, however, can come with a risk that the markets fall as well as rise. These situations do not occur often, but as an investor you need to be aware of them. In the past the markets have experienced bigger drops and have recovered.

If you can leave the money where it is, you don’t realise the loss. If you need to access the money, consider accessing as and when you need it. Think about how these circumstances can change in the future.

The following information may help you understand what this means for you and your investment if markets become volatile.

 

What is a volatile market?

A volatile market can be defined as the tendency to rise or fall within a short period of time – in other words it is caused by the ups and downs of the individual investments within the market.

 

What to do when you are investing in a volatile market

When it comes to volatility, the general advice is to keep calm. Volatility in the market is not necessarily a bad thing.

Volatility is one of the main reasons why investors sell at the wrong time and often fail to benefit from any potential recovery over the longer-term.  Whilst it can be a natural instinct to want to sell in times of uncertainty to avoid the risk of further loss, don’t forget that as the market falls this reduces the cost of additional purchases you may make. 

 

Keeping it in perspective

You need to be comfortable with your investment, remember that all of our products are a medium to long-term investment. Look at the performance over a longer period opposed to what has happened in the last few months or so.

According to independent research (Barclays Equity Gilt Study 2020) in every 10-year holding period over the past 111 years, the probability of equities outperforming cash was 91%. It was 76% for a 5-year period over the past 116 years and 69% for a 2-year period over the past 119 years.

Whether you are saving for yourself or your child you should ensure that you invest for the minimum recommended investment period.

 

Where is my Plan invested?

If your Plan is invested in the Foresters Stakeholder (Schroders) Managed Funds the fund management team at Schroders professionally manage the investment, identifying opportunities with a risk-controlled diversified investment approach.

The idea of diversification is that whilst one investment may be going through a bad time, then others may not – and this diversification helps to smooth out the risk of volatility. The idea of investing savings in more than one area is well established which is why investors often pool contributions into professionally managed funds which have many different assets. The ‘asset allocation’ or in other words, how you divide your money between shares, cash, fixed interest securities is crucial to managing risks – including volatility.

The fund management team at Schroders, who are responsible for our funds, invest in a mix of UK and Global Securities. Unlike some funds which are restricted to UK investments, our Stakeholder Managed Funds listed share holdings are globally dispersed with nearly 60% being outside of the UK.

These funds give access to a professionally managed portfolio of UK and international company shares along with global government and corporate securities and cash. Whilst this does not prevent losses if the global economies or markets fall, in which case many asset classes may suffer, it does limit having ‘all your eggs in one basket’ and helps the fund benefit from the different investment cycles across the asset classes – thus limiting the volatility across the fund.

 

Investing in 100% equities

If your Plan is invested in a 100% equity fund, while they are invested in a large number of companies which operate worldwide and in different sectors, they are still exposed to falls during volatile markets. You need to consider your longer-term investment goals and aim to keep calm during periods of uncertainty.

In the later years the Child Trust Fund – Stakeholder Options Plans have Lifestyling applied; the purpose of Lifestyling is to progressively reduce the investment risk of the Plan in its final years (when the child reaches age 15), by moving the investments from the current fund, to the Foresters Stakeholder (Schroders) Managed 1 Fund which follows a more conservative fund strategy designed to provide growth potential without undue risk.

Find out more about Lifestyling >

If the Plan does not lifestyle, and you are feeling uncomfortable with how your money invested in the current environment you could consider switching part or all of your investment into the Foresters Stakeholder (Schroders) Managed Fund. 


As an investor before you make any decisions, consider the best options that will meet your original goals of investing. Be aware of risk during times of volatility, but don’t panic. Remember that an unsteady market may be a result of specific economic events, and may not be for the long-term. But, bear in mind that past performance is not an indicator of future success. The value of your investment can fall as well as rise, and as with all stock market investments you may get back less than paid in.

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