Market volatility is normal and a fact of life. Over time, investments will rise and fall, which is why a long-term strategy is essential. However, in times of political or economic instability, many people feel under pressure to make reactive, emotionally driven decisions. We look at the importance of maintaining investment discipline during periods of uncertainty.
Why investment discipline matters in investing
Investment discipline is the ability to stick to a pre-determined, long-term investment strategy, regardless of short-term market volatility. It’s about maintaining good habits and investing consistently, despite recent market activity.
A common scenario is when an investor reacts to market shocks with an emotional response. They might try to move cash around quickly, or they might try to time the market. As an example, selling when markets fall or rushing to buy when they rise. However, such approaches can be risky as they could harm your long-term investing outcomes.
Short-term fluctuations happen all the time, and they don’t necessarily mean that your investments are off track. Making impulsive decisions based on fear or excitement can lead to losses and missed gains. Even professional investors struggle to predict short-term movements in the market. Be patient and disciplined when it comes to investment decisions.
Market volatility should never drive reactive decision-making. A structured, consistent, evidence-based investment approach is a proven key driver of long-term investing success. For more guidance, see our blog, Why Time in the Market Beats Timing the Market.
Why your investment strategy should be for the long term
A long-term investing strategy should underpin your portfolio construction. Instead of jumping in and out of the market, compound growth leads to better returns for those who stay consistent.
This is why it’s so important to maintain investment discipline during periods of uncertainty to prevent reactive decision-making. In times of economic uncertainty, costs can rise, causing people to panic.
As an example, over the past few years, we have seen a lot of volatility in energy costs:
Some people will have fixed their tariff before their energy bills started to rise, helping them to budget ahead. Others may have moved away from fossil fuels, investing in renewable energy sources such as solar panels. Although these technologies can come with large upfront costs, in time, people often see a return on investment. Some are even paid to put energy back into the grid. By looking ahead, you can help to manage your costs.
There are similar comparisons that can be made in relation to investing. By taking a long-term approach, you are more likely to see better returns. Instead of being reactive to market volatility, a long-term investing strategy offers greater security and stability. With a well-diversified portfolio, you will be able to withstand market shocks and manage your finances in any eventuality. You can also plan ahead and make the most of available tax relief.
Diversify your investment portfolio management
Diversification of your portfolio enables a healthier and more resilient investment approach. The aim is for your wealth to grow steadily without taking any excessive risks. Some people’s wealth is in an active workplace pension or a limited company pension. It’s worth understanding how funds are being invested and your options. You may have already retired, and you might be looking for a tax-efficient way to manage your wealth.
At Balance: Wealth Planning, our team can recommend portfolios of investment funds across the whole marketplace. We also manage two ranges of successful, in-house portfolios, which are available exclusively to our clients. Both ranges consistently demonstrate strong performance because they are well-diversified, minimising the risk of market volatility. Our investment decisions are backed by academic evidence.
Our investment philosophy is grounded in good investment discipline:
“We know that we cannot control the returns that investors receive, but we can control other factors that make a real difference to their long-term objectives. This includes everything from minimising investment costs, and having a well-diversified portfolio, to managing the emotional reactions to investment movements, or setting budgets.”
Ultimately, your investment decisions need to be based on taking a long-term view. A logical, consistent approach will enable you to grow your wealth without taking unnecessary risks.
Wealth Planning, Nottingham and Lincoln
Investment discipline is the key to successful investing, and it helps to protect your goals. Impulsive, emotional responses to market fluctuations can be costly, and timing the market is high risk and rarely works. A well-built portfolio should be designed for volatility with a well-diversified structure. Review your portfolio regularly, but don’t react or chase trends.
Our financial planning team don’t act from intuition or opinions, and we will never ask you to make impulsive decisions based on short-term market news. Instead, we use a strategic asset allocation approach with funds that track market benchmarks. Our global investment portfolios consist of equities and bonds, diversified by asset class, sector and geography.
For wealth planning and investment advice, get in touch with our financial planners.
Sources:
(Balance: Wealth Investment pages)
https://www.forbes.com/sites/rickferri/2015/10/06/six-rules-to-disciplined-investing/
