The case for investing during volatile times

Market volatility is nothing new, however, due to panic some investors decide to pull out at the slightest sign of volatility. The nature of markets is such that in the short-term they will fluctuate, but over the long-term there’s potential for gains.

Carin Meyer, Head of Share Investing at FNB, says “There’s an element of risk to investing just like there’s potential for capital growth, hence it’s important for one to be aware of the their risk appetite to avoid hasty decision making during market volatility. Consider what happened in 2008 when global markets including local stocks took a nose dive, the market turned around and self corrected. Although things are not looking rosy at the moment there are indications of recovery”.

To give ourselves the best chance of success during volatile times, it’s always important to remember these top 3 long-term investment guidelines:

1. Diversify

We can never say enough about this – ensuring that all of your eggs are not in the same basket is critical. Owning shares from different sectors and owning companies that do different things means that when one industry is down, another industry may be up. This ensures your portfolio has the best chance of success.

A very easy and affordable way to ensure diversification is through Exchange Traded Funds (ETF’s). An ETF holds shares and tracks an index – like the Ashburton Top40 ETF. This gives you exposure to the Top 40 shares listed on the JSE, meaning you are never exposed to a single company or industry but rather your risk is spread.

2. Be realistic in your expectations

When the markets are volatile your portfolio can take large swings, either positive or negative. Make sure that you understand this and don’t make any knee-jerk reactions, especially when it comes to selling if it doesn’t match your long term investment goal.

If you have diversified well, as per the previous point, you should find that you are still able to make returns even during volatile times. During Brexit, the JSE All Share Index (ALSI) was down 6.53% between Thursday 23rd June and Monday 27th June, however the Gold Mining Index made returns of 15.44%.

3. Stay invested

Remember, you are in this for the long term. Don’t panic when the market goes through short term dips, stay invested and even be on the lookout for bargains when prices drop.