by Louis Maddison, PenLife Associates
Imagine having the ability to predict market movements so you could buy low and sell high? But the markets are unpredictable—prices of stocks and shares change every second. It has been shown in history that certain funds have done astonishingly well, and others have gone off the boil. It may not seem like it at first, but whilst markets are in turmoil, it has historically been a good opportunity to invest. As Warren Buffett once said, it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful”.
That brings us to diversification. Diversification is having investments that react differently to the same events. Let’s say that you have investments in an ice cream shop that is open all year round. Those investments would generally be high in the warm months and low in the cold ones, where it rains. Subsequently, your portfolio would also decrease in value. However, this could be counterbalanced. There’s a high chance that when in the cold months where it rains, shares in a shop that sells umbrellas would jump up (due to higher demand). If you were invested in both, the rise in one would make up for the fall in another. But over the long term you get the benefit of both rising, which would be far less risky for you as an investor. This is a tricky thing to do on your own so it’s best to contact a professional financial planner to help.
The benefits of diversification include:
• Minimises the risk to your overall portfolio.
• Exposes you to more opportunities for return.
• Safeguards you against adverse market cycles.
• Reduces volatility.
The markets are always subject to volatility, according to what’s going on in the world. To be a successful investor it’s important to take a pragmatic approach. One thing that will be a bumpy road is the global economic recovery from the pandemic and with rising inflation and Russia’s attack on Ukraine on top of this, it’s making investors worry. But please don’t panic due to uncertainty. Hold your ground, stick to your plan and don’t let your emotions influence your decisions and choices.
Here’s a few key steps that we recommend, to ensure you can make the most out of your money:
- Find out your attitude to investment risk.
- Understand the relationship of risk and return.
- Take a long-term view… it’s time in, not timing
- Be patient.
- Avoid trying to time the market.
- Have a strategic approach.
- And finally, our last step of advice is to get in touch with us—we can help you with every single thing we’ve mentioned.
If you want to discuss anything that we’ve mentioned with one of our financial planners, and think that we can help you manage your finances to ensure that your money works for you, call us on 01904 661140, or alternatively, you can email us at email@example.com. Or, if you’d like to find out a little bit more, use the cut out on this page for our FREE ‘Why You Need a Financial Adviser’ Guide.