In recent weeks, the war in Ukraine has dominated the headlines of all major newspapers. The Russian invasion of their much smaller neighbour has sent shockwaves across the world, both politically and economically.
One significant consequence of this was that many global markets experienced significant volatility. According to the Guardian, the value of the FTSE 100 fell by 3.5% in the week following the invasion.
However, while you might be concerned about the effects of this market volatility on your portfolio, it can be important to keep a cool head. If recent events have made you anxious about your long-term plans, here’s why doing nothing can sometimes be a sensible strategy.
The war in Ukraine has had a significant impact on global financial markets
Many markets have been jittery in recent months due to underlying issues such as anxiety over the coronavirus, as well as rising inflation and energy costs. This meant that, when Russia invaded Ukraine on 20 February, it created a perfect storm of economic issues.
Due to the disruption of global supply chains, many markets suffered. According to data from the London Stock Exchange, between 21 February and 10 March, the FTSE 100 fell by 854 points, or 5.1%.
When you see dips like this, it’s understandable to worry about the performance of your portfolio. It can also be tempting to make knee-jerk reactions with your assets, such as selling equities that you fear may fall further.
However, a sensible response to market volatility can be to do nothing at all.
It’s important to remember that markets typically recover from dips
The wartime slogan “keep calm and carry on” can seem a bit overused at times, but it’s a useful motto to bear in mind when it comes to investing. This is because, while a downturn may seem alarming, it’s important to remember that markets usually recover.
When you invest, try to bear in mind that while prices may fluctuate in the short term, markets have a general upwards trend. You can see this on the graph below, which shows the performance of the FTSE 100 index since 1990.
Source: London Stock Exchange
Despite the various downturns, such as the 2008 financial crisis and the coronavirus outbreak in 2020, the value of the index is still significantly higher now than it was in 1990.
It’s also important to bear in mind that the value of your portfolio typically won’t mirror the market falls you may see in the headlines. This is because it is designed to be able to overcome short-term volatility.
For example, it may contain assets like bonds or cash. The benefit of holding these is that they are less vulnerable to stock market falls as equities are, giving you some measure of protection.
Focus on the long term when investing can reduce financial anxiety
If you’re worried by the prospect of a stock market dip affecting your wealth, here are some useful tips to give you more peace of mind.
Focus on the long term
Whenever you invest your wealth, it’s normal to expect some amount of volatility. All manner of global events can cause prices to fluctuate, but it’s important to remember that you’re investing for the long term.
As easy as it can be to worry, try to bear in mind that the general upwards trend of markets usually negates the effects of any short-term dips.
Don’t keep checking your portfolio
During periods of volatility, it’s often tempting to keep checking the value of your assets but doing so will only make you more stressed. Just like how a watched pot never boils, a watched portfolio never grows!
Avoid panic-selling
One of the biggest mistakes you can make when stock markets fall is to make a knee-jerk reaction and panic-sell your assets, as doing so turns a theoretical loss into an actual loss. Often, holding onto them can be much more sensible, as they may recover their value in time.
Get in touch
If you’re concerned about how market volatility might be affecting your progress towards your financial goals, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note:
The value of your investment 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.
