When doing nothing is the best strategy

Jessica Amodio
Partner & Independent Financial Adviser at GDA

There are times when stock markets go through periods of volatility due to uncertainty. This uncertainty can have many causes e.g., poor economic performance or geo-political tensions, and it is understandable that this can be unsettling for investors who can experience sharp drops in their investment portfolios. At these times it is really important to remember that this market volatility is usually short-lived and the markets will rally, so even though you could be tempted to change your long-term investment plan, most experts agree that you are better off doing nothing rather than trying to time the market. In a highly volatile market prices aren’t always an accurate reflection of real worth. A sudden swing up or down can make an investment suddenly seem worth more or less than it really is over the long term. If you do try to anticipate market gains and falls you are at very real risk of missing the best gains and this could effect your long-term returns.

To help illustrate this, Fidelity have analysed the average annual return from the UK stock market over the last 15 years. In the chart below you can see that missing just the 10 best days over this period would have cut your return substantially. Timing the stock market is extremely difficult, the best policy is usually to stay fully invested over the long-term.

Reference: Fidelity International Investment Essentials series.

Please note that past performance is not a reliable indicator of future returns. The value of investments can go down as well as up, so you may get back less than you invest.

Time, not timing, is the key to investing.

This article is for general information and does not constitute personal financial advice. If you’re unsure what’s best for you, seek independent financial advice.