Even as we wish to put the coronavirus (COVID-19) pandemic in the rear-view mirror in 2021, uncertainty regarding both the virus and Brexit looming is likely to continue to add further weight on the UK and global economies and our personal finances during this year.
2020 was a tumultuous year. Government support during the crisis has been significant in its scale, borrowing more since the lockdown was imposed back in March 2020 than during the entire year following the Global Financial Crisis.
But even with unprecedented steps being taken to ensure the roll-out of vaccines globally, the big question for 2021 is ‘what further market volatility can we expect?’ Market volatility can impact on your investments drastically, depending on the specifics of your portfolio. While we hope volatility is less elevated this year, financial markets and the economy could still remain at the mercy of COVID-19 developments.
Strategies To Help You Manage Volatility
Volatility is essentially a measurement of risk. And as the balance of risk and return is at the heart of investing, it is important to understand how it affects your investments, but it’s also important not to let emotions drive your decision-making.
Setting Specific Investment Goals Is Key
It can be difficult to focus on the big picture during any times of market turbulence. Understandably, investment volatility can make it easy to focus on the short term and those temporary peaks and troughs. Setting your specific investment goals is important to keep you focused when you need it and enable you to build a portfolio to get you where you want to be. Investment plans should include a combination of various investment and fund type in order to obtain a balanced approach to risk and return.
Maintaining a balanced approach is crucial to achieving your investment goals, while keeping in mind that at some point you will want access to your money. This makes it important to allow for flexible planning. Your long-term plans (those that are at least 5 years away) should be the focus of your investment portfolio.
Market Factors That Determine Volatility
Market volatility can be nail-biting, even for the most experienced investors. Many different factors can impact market volatility, sending values of investments in either direction. A financial adviser near me said some of the most common factors that determine the volatility of the market include investor concern, political events, natural disasters and major events in foreign markets. But it’s important to keep matters in perspective. Avoid making rash decisions, and focus on your long-term goals.
Bear markets are unsettling, but they aren’t new and history tells us they don’t last forever. Stop looking at your portfolio and its value on your phone, tablet, laptop or desktop. It will only make you and perhaps make you want to do something. Keep investing as you normally would. Also, don’t attempt to pick the market bottom or the turnaround to jump in. Fight the impulse to think you can.