Imagine having the ability to predict market movements so you could forever buy low and sell high? It’s impossible! The markets are unpredictable – prices of stocks and shares change every second. It’s been shown in history, where certain fund have done astonishingly well, others (with previous success) have gone off the boil.
It may not seem like it at first, but whilst markets are in turmoil, it has historically been a good opportunity to invest. We always tell our clients that… it’s time in, not timing (the markets), but volatility can be an opportunity.
So, what is diversification? Essentially, diversification is having investments which deliberately react differently to the same events. For example, let’s say that you only have investments in airline stocks. Following any negative news regarding the airlines (something that could potentially disrupt flights), the share prices would undoubtedly plummet. Subsequently, your portfolio would also decrease in value. However this could be counterbalanced. There’s a high chance that railway stocks will jump up (as people would be looking for alternatives in transportation – so there’s a higher demand). If you were invested in both, both events would only affect part of your overall investment. Which would be far less risky for you as an investor. The more uncorrelated your investments are, the better! The benefit of diversification, in regards to your investments, is to minimise the risk of an event having a negative impact on the funds you hold your money in. However, once again, this is a pretty tricky thing to do on your own. So, it’s best to get in touch with a professional financial planner to help.
The benefits of diversification include:
- Minimises the risk to your overall portfolio.
- Exposes you to more opportunities for return.
- Safeguards you against adverse market cycles.
- Reduces volatility.
The markets are always subject to volatility, according to what’s going on in the world. So to be a successful investor it’s important to take a pragmatic approach. One thing that will be a bumpy road is the global economic recovery from the pandemic. And especially with rising inflation and Russia’s attack on Ukraine on top of this, it’s making investors worry. However, we’re sure you’ve heard us say this plenty of times but please don’t panic due to uncertainty – that’s what we’re here for. Hold your ground, stick to your plan and don’t let your emotions influence your decisions and choices.
So where does that leave us? Here’s a few key steps that we recommend, to ensure you can make the most out of your money:
- Find out your attitude to investment risk – How much risk you can afford/are willing to take? It’s about finding that balance that you’re comfortable with when your investments are doing well and not so good. We provide a risk assessment as part of your introduction with us to get you on the right path.
- Understand the relationship of risk and return. If you want a higher return, that usually comes with a higher risk. And vice-versa.
- Diversification – As we mentioned before, it’s best to avoid putting all of your eggs in one basket. And this is something that we do with all of our portfolios, to ensure you make the most out of your investments.
- Take a long term view – If you’ve got it in mind to take out your money in a few months or a few years, maybe the stock market isn’t the best place for you. If you want to see real growth and maximise your potential, you’ve got to be in for the long run.
- Be patient – This links to the previous point, investing is a slow process.
- Avoid timing the market – It’s no crystal ball when it comes to investing. Nobody can see into the future. It’s time in, not timing. And this is something that we live by on a day-to-day basis.
- Have a strategic approach – Having a plan when it comes to investing is a very smart move. Especially rather than emotionally investing – we’d highly recommend having a long-term strategy to which you can stick to.
- And finally, our last step of advice is to get in touch with us – We can help you with every single thing we’ve mentioned.
We know that managing your finances effectively leads to increased well-being and a better quality of life. And that’s exactly what we help our clients achieve. Having everything completely under control and knowing that you do is priceless. If you’ve found this information useful, and think that we can help you manage your finances to ensure that your money works for you – you can call us on 01904 661140, or alternatively, you can email us at email@example.com.