So far in 2022, economic volatility has made headlines almost every day.
As we eased away from the peak of the Covid-19 pandemic at the start of the year, the Russian invasion of Ukraine caused further market shocks, contributing to high inflation and market volatility across the west.
Plus, in September 2022, the autumn mini-Budget delivered by former chancellor Kwasi Kwarteng sparked international concern over British assets, causing the pound to fall to its lowest value on record.
During this period of turmoil, you may have become concerned about your investments.
Your portfolio exists to help grow the wealth you have earned as a sports professional, so the idea of it dipping in value due to circumstances outside your control might be worrying to say the least.
If you can relate to this feeling, you are not alone. Fortunately, there are steps you can take to mitigate this concern as markets continue to fluctuate.
Read on to find out four expert tips for managing investments during a period of market volatility.
1. Remind yourself of your long-term goals
When managing your investments in a period of volatility, it is important to focus on your long-term goals.
As a sports professional, it is likely you will retire at a younger age than the average worker. At the very least, your greatest earning potential is probably going to be across the shorter 10-year or so window of your playing career.
This means you could be investing heavily during your peak earning years, in order to maximise the potential growth of your investments in the decades to come.
So, if you are prone to worrying about downturns while in this crucial investment stage, it could be helpful to refocus your attention on the decades ahead, rather than getting stuck in the minutiae of the current economic climate.
Historically, markets have rebounded after periods of difficulty; a few short years of volatility should not deter you from continuing to invest.
2. Stop trying to time the market
After witnessing the markets weather a continuous storm this year, you may hesitate to keep investing. You might decide to try and “time the market”, keeping your wealth in cash and reinvesting when things look more stable.
However, this strategy is proven to be almost entirely futile. Indeed, it has historically been time in the market, rather than timing the market, that has helped investors see results.
One study performed by Nutmeg perfectly exemplified how investing long-term can yield positive results.
Using the period between January 1971 and July 2022, the study tested the likelihood of generating returns on your investments depending on how long you held the asset for.
Overwhelmingly, the results showed that the longer you hold an investment for, the greater the chance of you seeing a return.
For example, if you held an asset for any 24 hours in that 51-year period, your chances of generating a return were 52.4%.
Meanwhile, if you held an investment for any randomly chosen quarter, you would have seen a return 65.6% of the time.
Astonishingly, keeping an investment for one year generated positive returns 72.8% of the time, and, even better, a 10-year investment saw this increase to 94.2%.
This study is just one example of how focusing on long-term investments, rather than trying to cleverly time the market, is more likely to produce the returns you want.
3. Diversify your portfolio
One practical way you can shore up your investments against continuing volatility is by diversifying.
Diversification is one of the pillars of maintaining a successful investment portfolio; by spreading your assets across various classes, you can protect it against hits to any particular sector or class.
For example, according to interactive investor, some of the worst-performing stocks in August 2022 included ASOS and Boohoo Group, both retail assets. On the other hand, power companies XP Power and Shell both saw upticks in the same month.
If you held stocks exclusively in retail, your portfolio would likely have taken a hit in August. On the other hand, losses in your portfolio may have been neutralised had you held stocks across both these asset classes; one fell, the other rose.
So, by spreading money across sectors, regions, and locations, you can potentially decrease the likelihood of all your investments dipping in value at once.
For a bespoke investment review, or to discuss your attitude to risk, contact your financial planner today.
4. Remain calm and stay in the game
As a sports professional, you will have experienced a “losing streak” at some point in your career.
It is unlikely that this string of losses was purely down to your performance. The reason probably came down to a combination of external conditions and the performance of the entire team.
When you are experiencing a downturn in any area of your life, you have two key options: keep calm and carry on, or quit altogether.
Worryingly, some investors have decided to take option number two, and have quit altogether. Professional Adviser reports almost half of investors are cashing in their investments to keep up with the cost of living crisis.
Yet, with the Office for National Statistics (ONS) recording inflation to have reached 11.1% in the 12 months to October 2022, the interest earned on your cash savings are almost guaranteed to be outpaced by the rising cost of living. Moneyfacts reports that, as of 16 November 2022, the highest interest you can earn on an easy access savings account is 2.65%.
Indeed, even without inflation at a 41-year high, cash is historically outperformed by investments.
A Barclays study found that placing £10,000 in cash in 2001 would have left you with £17,757 by the end of December 2021.
Alternatively, investing this sum in the constituents of the UK FTSE All-Share would have grown this wealth to £27,417 in 2021. Even better, investing your £10,000 in global stocks would have given you £40,515 over the same period.
So, instead of being tempted to hang up your boots and cash in your assets while markets are volatile, it could be beneficial to stay put. While historical performance is no guarantee of what will happen in future, it does suggest that spending enough time in the market is more likely to yield positive results over time.
Get in touch
For expert guidance on how to manage your portfolio while markets are volatile, contact us. Email firstname.lastname@example.org or call 01625 529 499 to find out how we can help you.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.