It can be tempting to make hasty decisions during periods of economic turbulence. But withdrawing perfectly good investments when there is increased market volatility may well result in losses being incurred unnecessarily.
When it comes to investments, it’s important to stay level-headed.
Global markets have reacted to the ongoing Russia/Ukraine conflict, and the impact on energy prices, by selling off, which has resulted in increased volatility. Whilst this volatility is painful and being felt across all portfolios, investment managers have taken steps to mitigate exposure to assets experiencing the most severe downsides, which include:
- No exposure to Russian equity markets by selling Emerging Market holdings
- A reduced exposure to Asia
- Increasing exposure to the US dollar which is rallying versus sterling and the euro
- Holding gilts and global bonds to protect portfolios
- Reducing high yield exposure
- Increased exposure to quality assets such as global infrastructure
The above measures will serve to cut sources of unintended risk. Removing the exposure to emerging markets and Asia, as well as other high yield allocations, will reduce geopolitical and currency risks within portfolios and help portfolios better navigate increased market volatility. The key to successful long-term investing is to remain invested in a diversified manner.
When it comes to investing, you need to take on some risk in order to generate a return. One of the best ways to control that risk is through ‘diversification’. This means spreading your capital amongst different investments so that you’re not reliant upon a single investment for all of your returns.
By holding well-diversified assets at both a geographical and asset-class level, portfolios experience a (relatively) smoother return profile. This is because risk exposure is less concentrated. Read our recent guide on how investment diversification can help you hit your financial goals here.
Whilst it is difficult to predict exactly what will happen from here, history shows that, after periods of market turbulence and declines, tend to come sharp rebounds.
Professional investment advice
At George Square Financial Management, we provide intelligent, creative investment advice to individuals, trusts, families, charities and businesses. We excel at analysing your existing portfolio and assessing how this can best be optimised – often in a more tax efficient or cost-effective manner. We can also guide you through tough financial climates and market turbulence.