Overall, the stock market has been generous over the course of the past eight years or so. This optimism continued into 2018, with further strong gains seeing equity indices around the world soar.
This run was halted at the end of January and the market subsequently witnessed a correction with many share indices retreating from record highs.
The markets actually fell for the same reason that they had risen so strongly across 2017: good news on the economic front, specifically a US employment report showing stronger than expected jobs growth and an increase in wage levels. The data was viewed with trepidation amid fears of rising inflation and impending monetary tightening. Concerns that monetary policy is set to be tightened at a quicker pace and to a greater extent than previously envisaged has begun to weigh on market sentiment.
Stock market volatility is an inevitable part of investing. What you have to decide as an investor is how much risk is right for you. While the process of building a portfolio includes strategies to reduce risk, it cannot be eliminated altogether. Stock market performance is unpredictable and investing is all about adopting a longer-term view, diversifying risk and allowing your money time to grow.
The benefits of a diversified approach
The old adage about not putting all your eggs in one basket certainly applies when it comes to adopting an investment strategy. One way we can help you is by recommending a combination of different assets. Diversification is the process of spreading your money around different types of investments, so that your exposure to any one of them is limited, helping to reduce your exposure to risk and volatility. That way, a poorly-performing investment shouldn’t greatly damage your overall returns, and your money has more opportunities for growth.
The goal of a diversified strategy is not necessarily all about boosting performance, but once you’ve established the level of investment risk that you’re comfortable with, based on your chosen investment goals and time horizon, diversification has the potential to improve returns for your preferred level of risk. Regardless of what amount you have to invest, we can recommend the most cost-effective way to achieve this mix – often through collective investments.
It is important to regularly revisit your objectives and any changes in your personal circumstances which may affect your finances.
The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.