The market has been volatile in recent years due to persistent inflation, high interest rates, and geopolitical conflict. Is there a secret to investing in uncertain times?

The answer is – not really. But there are a number of steps you can take to protect your investments from the worst of the volatility and achieve long-term growth.

Stay invested

When prices are starting to fall, it can be tempting to withdraw money from the market to avoid further losses. But this is the worst thing you can do. When the market is volatile, prices can rise and fall rapidly within the space of a few days. Growth does not occur in a straight line, and a successful investment strategy relies on those ups and downs. 

If you take money out during a downturn, you will likely miss out on the recovery. Missing even a few of the best days in the market can result in longer-term underperformance.

Keep enough cash

Of course, you can only stay invested if you don’t need access to the money. 

Everyone should have an emergency fund to cover unexpected bills or expenses. In addition, you should also keep enough cash to cover any planned spending in the next few years. This avoids the need to take money out of your investments at short notice.

Keep up with contributions

Regular investors can actually benefit from a market downturn. In fact, you may even want to increase your contributions if you can.

This is down to pound cost averaging. When prices rise, your existing investments benefit from the growth. When prices fall, you can buy more shares for your money, which can boost long-term returns.

Trust the market

If you follow the financial press, you will know that everyone has an opinion about what will happen next and what you should buy and sell. The reality is that no one really knows. We may understand how different investments behave in particular market conditions, but we can’t necessarily predict when, how, or why these conditions will develop.

Remember, if you have heard a tip or a news item that might influence your investment decisions, so have millions of other people. The market is efficient, which means that all information in the public domain is already priced in. Trying to predict or time the market is futile, frustrating and time-consuming. 

Diversify

Diversification is the key to successful investing. It means holding a wide range of investments from different asset classes, global regions, and business sectors.

The idea is that all of the investments are unpredictable and will fluctuate, but not necessarily all at the same time. When one goes down, another could go up. This can help to smooth out volatility while still benefiting from long-term growth.

Balance risk and reward

While equities have the best chance of beating inflation and producing long-term returns, they are also one of the most volatile asset classes. If you are investing for over 10 years and are comfortable with the ups and downs, a mainly equity-based portfolio could be for you. 

But if you need the money sooner or are nervous about volatility, you should probably mix in some of the more stable asset classes, such as bonds, property and cash. 

Remember, these investments are not risk-free. Bonds and property can still fluctuate in value, and cash is unlikely to keep pace with inflation. The key is to balance the risk you take and align your investment plan to your goals.

Plan ahead

A successful investment plan looks to the long term. A robust plan can help you to understand:

• How much you should invest
• The returns you need, and therefore, the amount of risk you should take
• When you can take money out
• How much to withdraw

A dip in the market does not mean you need to rewrite your plan, but it may mean you make some small adjustments, such as investing more, adjusting your risk level, or deciding to reduce future withdrawals.

Remember this will pass

It can be difficult to keep things in perspective during market volatility. The situation seems uncertain, and it is unclear how it will resolve.

But remember, we have experienced recession, spiralling inflation, and war in the past. There have been challenges, but the world always moves on. History has shown us that even after a major event, the market tends to recover to its peak and continues to grow thereafter. 

We cannot control world events, only our own actions. It’s a good idea to step away from the news and focus on actions that will benefit your long-term investments.