When investment markets become volatile, it’s easy to feel uncertain. Seeing the value of your investment fall, even slightly, can be unsettling. But while short-term market movements often make headlines, they’re not unusual. In fact, they’re a normal part of long-term investing.
In this article, we’ll explore what’s happening in the investment markets, why volatility is expected, and how to think about your investments during periods of uncertainty.
What’s happening now?
Recently, global investment markets have experienced some volatility. These changes can occur for many reasons, including interest rate movements, inflation, political instability, or wider global events such as trade issues or supply chain challenges. In this instance, the recent fluctuations are driven by a combination of current geopolitical tensions and broader global uncertainty.
While these events can cause short-term fluctuations in the value of your investments, they don’t necessarily reflect the long-term outlook of the companies or sectors you’re invested in. Investment markets respond quickly to news, but this volatility happens in the short-term, with markets typically going on to recover where the fundamentals are strong.
Why this isn’t unusual
Market volatility is more common than many people realise, and while this can feel dramatic, it’s important to remember that this is part of the natural rhythm of investing.
What’s more important is what happens next. Over the long term, investment markets have consistently demonstrated their ability to recover from periods of volatility. While short‑term movements can be unsettling, these markets have historically regained stability and continued to grow once conditions improve and confidence returns.
Taking a long-term view
If you zoom out and look at a 20-year chart of a major market indexes a clear pattern emerges: short-term declines are followed by long-term growth. These fluctuations are not only expected, they’re part of the journey.
That’s why long-term investors are often encouraged to stay the course. Trying to time the market -selling when prices fall and buying back in later – can be risky. Some of the best days in the market often follow the worst. Missing just a few of those days can significantly reduce your long-term returns.
Should I sell my investments during periods of volatility?
It’s a question many investors ask themselves during uncertain times. The instinct to “do something” when investments fall is completely natural. But acting on that instinct can sometimes do more harm than good.
Selling during a downturn means turning a potential loss into a real one. If investment markets recover, as they often do, you may miss out on the rebound. And if you decide to re-enter the market later, you could end up buying the same investments back at a higher price. This is known as crystallising losses – by selling your investments before the market recovers, you could be locking in losses that would have otherwise only been temporary.
Instead, it’s often better to stay invested and give your money the chance to recover. History shows that investors who remain calm and focused on their long-term goals tend to fare better than those who react emotionally to short-term movements.
How Shepherds Friendly manages risk
Depending on which product you have with Shepherds Friendly, you will probably see differing levels of volatility. For example, our with-profits Investment ISA utilises a tactic called smoothing, which aims to dampen the effect of volatility in the short-term by holding back profit during times of positive performance, so that we can aim to pay more consistent bonusesduring times of volatility. This means that you already have protections built in, and as a result, you will not have seen the value of your ISA fall when you log-in to your account.
On the other hand, our unit-linked Stocks and Shares ISA is more directly tied to the movements of investment markets, so you may have already seen some of the impacts of this volatility in the value of your investments. However, this ISA is designed to give you access to funds that reflect different levels of risk and return. These funds track the performance of underlying investments, which means they will naturally rise and fall with the market.
This structure helps ensure that your investment is aligned with your chosen level of risk. And because the funds are diversified – spread across different sectors and regions – they’re less exposed to the performance of any single company or market.
Diversification doesn’t eliminate risk, but it does help to manage it. It’s one of the key principles of long-term investing.
Final thoughts
Volatility is a normal part of investing. While it can feel uncomfortable in the moment, it’s important to remember that investment markets have generally recovered from past downturns, and long-term investors who stay the course are often rewarded for their patience.
If your goals haven’t changed, your investment strategy may not need to either. And if you’re ever unsure, we’re here to help.
