The current economic climate presents its own set of challenges for people looking to invest. Whether it’s rising inflation, global instability, or fluctuating interest rates, the uncertainty in today’s market can cause significant anxiety. Beyond concerns over rising costs, job security, or the ability to enjoy simple pleasures like dining out or traveling, investors are particularly troubled by how these factors could introduce even more unpredictability in the market.
These worries are top of mind for many, as recent market downturns have frequently wiped out billions from major stock indexes. While it’s easy to get caught up in short-term fluctuations, it’s essential to stay focused on the bigger picture.
Market ups and downs are a natural part of investing. The good news? There is solid evidence that long-term investing reduces the likelihood of overall losses. Short-term volatility often smooths out over time, and those who stay invested through the rough patches tend to reap more consistent returns.
Here are some key mantras to keep in mind if you’re feeling uneasy about market volatility:
What's in this blog?
You’re in it for the long haul
Did you know that over the course of 50 to 60 years of saving, a person could experience around seven recessions? Yes, seven!
Investing is a long game, and although it’s easy to get caught up in the panic of negative short-term movements, there is one golden rule to remember: never sell your stocks or investments when the market is on a decline. What should you do instead? Keep calm, keep a distant eye and leave them alone. You’ll thank yourself for it later.
Know the difference between trading and investing
There’s a common misconception that trading and investing are much the same activity, when in actual fact this couldn’t be further from the truth. The main difference between trading and investing is the outcome one is trying to achieve. If you’re looking for short-term profits, with a focus on share prices and willing to take a high risk, high reward gamble – trading is your game. However if you’re looking for a long-term solution to diversify your assets and generate wealth in a more risk averse manner, you need to be thinking of investing.
Let’s start with trading. Simply put, stock trading is about buying and selling stocks for short-term profit, with a focus on share prices. Investing is about buying stocks (or rather funds to achieve diversification) for long-term goals. Trading is fast-paced, with quick decisions, and relies on short-term fluctuations in the daily prices of stocks. Trading essentially aims to take advantage of even the smallest fluctuations in price to make profit.
Investing for the long term, on the other hand, means that investors often hold onto their investments for years, even throughout short-term volatility. So, right now, what you should be thinking about is the long-term investing option.
Consistency is key
Don’t let your budget or financial constraints discourage you from getting started. Investing as little as £25 per month is a great way to get your head around the investment scene and understand how it works and what your options are. People who have set up monthly payments over a period of 10 years are seeing worthwhile returns, and you could too.
You don’t have a crystal ball
The idea of predicting the future is tempting—especially when it comes to investing. Knowing where the markets are heading would be useful, but trying to ‘time the market’—picking the good days and avoiding the bad—rarely works. Sure, some investors get lucky now and then, but no one can consistently predict short-term market movements. That’s why we suggest you relax and focus on the long-term.
Not only is market timing tough to get right, but it also means you risk missing out on the best days. Many of these occur during periods of extreme volatility. For instance, during the global financial crisis (May 2008 to February 2009), the MSCI World index dropped 30.4%, only to bounce back by 40.8% by the end of 2009.
From storms to calm waters
In the face of market volatility, it’s easy to feel anxious and uncertain, but remember that investing is a long-term game. By staying focused on your goals and resisting the urge to react to short-term fluctuations, you position yourself for better outcomes over time.
So, take a deep breath and keep the bigger picture in mind. Whether you’re new to investing or have been in the market for years, consistency, patience, and a long-term perspective are your greatest allies. Market swings will come and go, but those who stay the course are often the ones who reap the rewards.
Stay calm, stay invested, and trust the process. The markets are resilient, and so are you!
