2019 has been a volatile year for investments. You’ve probably seen investment values fluctuate and challenging geopolitical relations means it’s likely to be a trend that continues into 2020. Keeping the basics in mind when investing is essential for success and reviewing them now can help set you on the right path for the New Year.

So, why has 2019 been a difficult year for investors with volatility? There’s a myriad of factors that influence the value of investments, many of them difficult to predict. Even seasoned economists and professional investors can find it impossible to accurately and consistently predict what will happen as outside influences have a huge impact. Over the last 12 months, for example:

• Brexit has continued to have an effect on stocks and shares in the UK as well as further afield. Trade deals failing to receive enough votes, a change in Tory leadership and, most recently, a general election, have all had an impact, with prices rising and falling depending on how likely a trade deal is and a higher level of certainty about what will happen in general.
• An ongoing trade war between the US and China has seen prices of certain goods face tariffs, and it’s impacted many firms operating in these two key markets. It’s been suggested that a deal is close and could be signed early in the new year, but this isn’t certain. A positive trade deal could boost investments within these areas.

If investment volatility has been worrying you over the last year, it’s worth going back to the basics as we head into 2020.

1. Invest with a long-term goal

You should only invest with a long-term time frame in mind. This gives you an opportunity to smooth out the peaks and troughs that the markets naturally experience. Ideally, you should aim to invest for a minimum of five years to offset the potential effects of volatility. When you look at investment performance over time, you should hope to see a gradual rise in value. Investing is an important part of your wider financial plan and should reflect long-term goals too. Don’t make knee-jerk decisions when volatility occurs. Stick to your financial plan and review with careful consideration before making any decisions to adjust.

2. Keep the bigger picture in mind

When you see that investment values have fallen, it can be disheartening. But you need to look at the bigger picture. Let’s say your investments have performed poorly in 2019 and fallen in value by 4%, it’s certainly not what you hoped for. But if you take a look back at how they’ve performed over the last ten years, it’s likely this loss is offset by previous gains. Investing is a long-term game, so you shouldn’t focus on a small window when assessing performance.

If you’re relatively new to investing, this can be difficult to do. Here, looking at long-term projections and the volatility level expected can help you stay on track.

3. Ensure your risk profile is appropriate

All investments come with some level of risk, and it’s important your portfolio is right for you. As a general rule of thumb, the higher the potential returns the more chance you have of losing money and the more likely you are to experience volatility. You need to be comfortable with how investments perform, including how values may change.

If you’re worried about volatility, it may be time to review your risk profile. It could be that your goals and situation have changed. Alternatively, taking a closer look at investments can help you better understand the volatility experienced and feel more comfortable with the process. Many factors should play a role when selecting a risk profile, including your goals, capacity for loss and other assets.

4. Build a diversified investment portfolio

You should never put all your eggs in one basket when it comes to investing. Building a well-balanced, diversified portfolio is essential. This means choosing different types of assets, industries and locations to invest in. The reason for this is that when one part of the market dips, another will be rising. Investing in a range of stocks and shares can help smooth out the volatility as assets can balance each other out.

When assessing diversification in your portfolio, make sure your risk profile is one of the key areas considered. Even a seemingly small change in asset allocation could mean taking more or less risk than is right for you.

5. Remember, volatility is a ‘paper loss’

No one wants to see the value of their investments fall. However, until you sell assets, these losses are on paper only. You only realise the losses once you’ve disposed of the asset. Selling can mean you miss out an opportunity for investment values to rise in the future. Keep your long-term investment plan in mind when making decisions about when to sell assets.

If you have any questions about your investment portfolio, please contact us. We’d be happy to discuss how your investments have performed over 2019 and what it means for your wider financial plans.

Please note: The value of your investment can go down as well as up and you may not get back the full amount invested. Past performance is not a reliable indicator of future performance.