Monday, March 14, 2016
Stock market volatility
Noise or warning?
Earlier this month we commented on a rocky start to 2016 and stock market volatility has not gone away. Next week we will share with our personal investment clients some insights from our most recent quarterly investment review, but in the meantime you may be interested in our independent economic consultant Peter Stanyer’s thoughts:
‘When the stock market makes the news, it is never good news for investors. So far as the press is concerned, good news is no news, and bad news helps journalists fill column inches. Since the start of the year, the stock market has been in the news, with the FTSE 100 index of UK shares having declined about 9% and the better-diversified world index by about 7%.
‘Despite this, an increase in stock market volatility is not a reliable indicator of future poor performance by investment markets – investing would be easy if it was. In early 2016, economic forecasts remain quite favourable for the world economy, even if the energy and other commodity sectors and countries are struggling.
‘In eighteen months’ time, the recent spike in volatility may be seen as transient noise, in which case investors would be pleased not to have changed tack. But no one knows how the future will evolve, which is why advisers recommend balanced, diversified strategies, and spend time explaining how they might perform in bad times. Given a well constructed strategy, the recent increase in market volatility does not give an obvious reason to change tack.’
Peter Stanyer, independent economic consultant to The Financial Planning Corporation LLP
January 21, 2016
Peter is the author of The Economist Guide to Investment Strategy, 3rd edition, Profile Books, 2014. The views expressed are his own personal views, and do not constitute advice to buy, sell or hold any investment.
In turbulent times investors need the discipline to not do the wrong thing in the short term (panic!), and the patience to do the right thing in the long term.
By setting aside cash to meet day-to-day spending needs investments can be left to deliver long-term objectives – and lurid newspaper headlines safely ignored.