One of the biggest barriers to entering the market for new investors is a nervousness about market volatility.
After the last few years, this shouldn’t be a surprise: we have seen a global pandemic which had a seismic effect on everything financial; we have seen the world’s economies jolted by an energy price shock; we have seen inflation hit double figures after many years of relative stability; and we continue to read about conflicts and other geo-political upheaval which is contributing to a general feeling of instability.
Small wonder then that many new investors are nervous. Media stories about cash flooding into ‘safe havens’ such as gold and government gilts are hardly likely to boost confidence in the ability of stocks and shares to give a stable return.
And yet: at a time of high inflation, cash-based investments can very quickly diminish in real terms. Whereas the stock market has always outperformed cash over the longer term, notwithstanding the various bumps in the road along the way.
It is often after one of these bumps, when the market is at a low ebb, that new investors are most nervous about diving in. And yet that can be the very best time to invest, because a recovery will always follow a down-turn, and the only way of benefitting from that recovery is to be part of it. You have to be in it to win it, as the saying goes.
That doesn’t mean having to be a buccaneering risk-taker.
There are all sorts of ways of entering the market, some carrying more risk, others designed to build in stability and smooth out the sharper corners of financial volatility.
That is why the first thing that any financial planner should discuss with you is not the types of investment which are available, but rather you, your aspirations and ambitions, and your concerns and attitude to risk. And if you are nervous, then the advice you receive should reflect that.
We would all like life to be stable, and predictable, but it’s not like that. We have experienced a particularly turbulent few years, and there is uncertainty ahead: about what a potential new government in this country will do, about who will be in the White House after November, about Ukraine, the Middle east, climate change – the list goes on.
If we let these things worry us into taking no decisions at all, the one certainty is that inflation will gradually erode the spending power of the savings we have. Being nervous should not result in taking no action; instead we should channel that concern into making the right investment decisions, and taking advantage of a market which is at a relatively low ebb so that we can benefit from the inevitable recovery, when it comes.