8 Tips on How To Handle Market Uncertainty

COVID 19, trade wars, tariffs, politics, interest rates, and the list can go on. We are living in an unpredictable world right now. With the financial markets and stocks showing large deficits, it’s leaving many people feeling concerned about their financial future.

On the plus side, history has generally shown that these downturns come and go and markets generally rebound over time.

Here are eight tips that might help you stay focused on your long-term objectives during a downturn.

Maintain a Diversified Investment Portfolio

There’s never a good reason to avoid diversifying your investment portfolio within a wider range of industries and sectors, and investing across multiple countries and territories will help soften the blow from region-specific economic threats.

Make sure to avoid high-risk industries that have been thrown into uncertainty following the emergence of a pandemic or recession, like travel and tourism for example.

As with any investment type, diversification doesn’t guarantee a profit, but if you’re worried about losing a big chunk of your money all at once, it can help to reduce the effects of volatility.

Rebalance your portfolio

Rebalancing your portfolio is quite similar to diversifying, although it involves selling assets in areas where you have ended up with too much and buying more in areas where you have too little. By exposing too much of your portfolio to a single asset sector or geographical area, rebalancing can ensure that you are not taking on a level of risk that you have not planned on.

I usually only recommend rebalancings if you’re a seasoned investor, as it requires a level of investment knowledge and experience, and shouldn’t be done on a regular basis.

Make sure you have enough cash for emergencies and other short-term needs

It’s always important to have a cash cushion of at least 6-12 months so that you are not reliant on short term investment performance, and especially not in volatile circumstances.

Having cash on hand to deal with day to day and short term needs will take much of the stress out of watching and waiting on the stock market in uncertain periods. As a general rule, short term funds, including education payments and other miscellaneous needs, should be held in high liquid cash funds.

Seek professional advice

An independent and experienced financial advisor will be able to construct a diversified portfolio based on an individual’s risk tolerance, that not only meets the medium and long-term needs of investors but is also robust enough to weather storms of uncertainty. An advisor can help you:

Avoid making quick moves on your own, even if you are convinced its something you must do. Instead, meet with your financial advisor and share your concerns. A discussion might help you see things from another perspective.

Resist making decisions on the basis of single events.

Re-examine your investment goals, time horizon, and risk tolerance to make sure they remain in your best interests.

Filter the noise

When financial markets are in turmoil, there is a natural tendency to be easily influenced by recent news, events, family, and friends or experiences. Admittedly, it’s hard to block out the fear of 24/7 market news. Knowing when to filter is important, as this can lead to unnecessary or erratic trading and cause you to stray from your original plan that may have been researched and constructed specifically for these types of situations.

If you are stressing about your situation, take time to ask questions to the relevant people, and fact-check sources who are guiding you. Again, working with an advisor can often help you discover another point of view.

Consider this a great buying opportunity

We’ve all heard stories of investors making a fortune during recessions or pandemics, and it’s for good reason. Warren Buffett often views uncertain and risky markets as great opportunities because the valuations of valuable companies get lowered due to circumstances beyond their control. That’s when he buys a majority stake in companies, enough shares to become a part-owner/owner, and have a seat on the board.

Profit with time in the market, not timing the market

Avoiding the desire to time or predict the market is perhaps the most important urge for investing in uncertain times. Investors in shares benefit from both capital growth and dividends, with dividends simply the share of profits a business pays out to its shareholders. Over time, the contribution of reinvested dividends to your total return can be substantial, sometimes contributing more than half your total return.

Trying to time the market, or buy low and sell low, means you miss out on the power of reinvested dividends.

Focus on what you can control

The reality is that financial markets around the world are constantly changing. If the stock market has gone up over the medium or long term, it’s bound to drop over the short term. By trying to predict or control the market, you’ll be setting yourself up for disappointment.

The things you can control are how you manage your investments and stocks, your savings and investing rate, having a financial plan and how you react to events, and your risk tolerance.

Conclusion

Of course, these tips need to be balanced by many lifestyle factors, such as your individual financial situation, age, debt level, business profits, and so on. By following these eight steps, you’ll increase the odds of reaching your long-term financial goals and get a better night’s sleep.

Keep in mind, experienced trading and investing, is not about avoiding loss but about minimising the damage when losses arise.

I am Giles Maynard. I provide individual investment and wealth management services for private clients and companies. I have been trusted by clients, large and small to manage, protect, and preserve their wealth. How can I help you with yours?