Friday 24 June, or ‘fallout Friday’, was the day the UK announced it had made the decision to leave the European Union. The stock market took an absolute beating, by lunchtime the situation looked dire but at the end of the day things looked slightly better and that has continued to be the trend this week.
Investing amid this volatility takes nerves of steel. But whipping all your money out when you see it drop by 10% only serves to realise those losses. It sounds like a cliché but a sensible investor really needs to keep calm and carry on.
If you do not need your money now leave it where it is. At times of volatility it is unpleasant to see your hard saved cash falling in value but withdrawing at the time when the market is at its lowest only serves to accept those losses.
You need to maintain your long-term view. An investment is not for the money you need tomorrow; it is for the money you need in a few years. History shows us that markets tend to rebound after a drop, whilst past performance is never an indicator of future returns you want to avoid the risk of taking the cash when the value is low.
This volatility is all caused by investor sentiment, there is huge political uncertainty at the moment driving this activity. But the value of companies did not change overnight and there are not the underlying issues that there were in 2008.
Diversification is king
Being invested in other markets, other currencies and other asset classes help to protect you against the risk of one market. Stock picking at times of volatility is incredibly dangerous, whilst you cannot eradicate the risk of investing you can limit it.
You need a mix of sterling and non-sterling assets and exposure to government bonds will help to provide a base.
At times of volatility passive instruments, such as Exchange-Traded Funds (ETFs) can be a good way to access the market. These instruments track a benchmark made up of lots of funds so you have diversification within that one asset class.