Articles

Stock Market Volatility: What it is and what it means to you

16.07.2013

Units can fall as well as rise in value and you may not get back the amount invested.

That was the first ‘wealth warning’ most of us can remember and by and large we were all – advisers and clients alike – fairly comfortable with it. Stock markets – and the underlying funds our clients were invested in – did indeed rise and fall, but generally speaking they did it fairly sedately. Give or take the odd ‘Black Monday’ none of the movements were too dramatic and clients appreciated that what went down eventually came back up again.

But in the past ten to fifteen years all that seems to have changed. Markets now really do rise and fall. It’s not unusual to switch on the news and see that the FTSE-100 index has risen or fallen by 2% or more in a day’s trading. In 17 of the first 27 trading days after the US Federal Reserve announced the end of its stimulus programme the Dow Jones index moved up or down by more than 100 points.

As the world becomes ever more connected and economies become ever more reliant on global trade local stock markets are far more likely to be affected by events in far-off countries. You’d expect the FTSE to be affected by problems in this country or in Europe, but the market is also affected by events in the wider world economy – weak jobs data from the USA, a downturn in factory output in China. These days, it’s not just about the Chancellor and the Governor of the Bank of England getting it right.

Add in the vagaries of computer-driven buying and selling and it’s no wonder that investors feel nervous. In our experience, no-one – investor or hardened stock market professional – really likes volatility. Of course, for some people market volatility is a heaven sent buying opportunity. To quote Warren Buffet:

“I’ll tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”

Most of us though, don’t have the time to wait for these buying opportunities. Neither do we have the courage to ‘bet against the crowds.’ Most people are investing for the long term, safeguarding their own future and the future of their family. It’s no wonder that exaggerated stock market swings make them nervous.

What should you do about volatility? In most cases the answer is nothing. We’re planning for the long term here, not for what happens on one day after some particularly bad news from a far-off economy. In addition, we’re using the best fund and investment managers that we can find to look after your money: as it says above, hardened stock market professionals. They may not like volatility, but they know how to deal with it.

If we ever feel that you should worry about stock market volatility – or that it is having an adverse impact on your wealth management and investments – then rest assured that we’ll be in touch. By the same token, if you have any questions about volatility, or you’d simply like some reassurance after a particularly worrying news bulletin, then as always please don’t hesitate to contact us.

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Independence, impartiality, courtesy, personal, tailored, up to date. Mr & Mrs P - Doncaster

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Adrian Smith

Chartered Financial Planner
Chartered Wealth Manager
CFP-CM

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