Invest Wisely to Ride Out Market Turbulence

Investors must aim for genuinely diversified portfolios and know when to modify their investments in response to choppy market conditions

Steady as she goes: the financial storms will eventually abate  Photo: Getty

Much as a ship’s captain must know when to batten down the hatches before a squall, the role of multi-asset portfolio managers today is to know when to gird against the onset of market turbulence.

We have been aware for some time of the gathering storm that is now shaking company shares worldwide. Indeed, most investors have fretted about the outlook for global economic growth, partly driven by declines in Chinese shares and the price of raw materials such as oil, since last summer.
So many prudent investors have been looking to reduce exposure to company shares within their broadly diversified investment portfolios.

Investing is a marathon, not a sprint, a fact of which we all should all be aware as we pick different investment styles

Meanwhile, in the bond markets there have been increasing concerns that the world economy still faces risks from deflation, or falling prices. Since bond prices typically rise in a deflationary environment, some investors have sought to increase their exposure to bonds most likely to benefit from deflationary pressures.

Their image as relatively ‘‘safe’’ assets has seen government bonds benefit from investors’ concerns over the global economy.

Investing is a marathon, not a sprint, a fact of which we all should all be aware as we pick different investment styles; calmer waters will return and when they do, the decision to stick with investments that can compound small, incremental gains in the long term is likely to look prudent.

Multi-asset investors must know how to spot the clouds parting, and be ready to modify their portfolios

Experience tells us that when markets are choppy, investment decisions should be guided by a desire for consistency in performance; instil genuine diversification in portfolios and cushion against market declines if possible. This last point is important for investors approaching or in retirement, when any losses they suffer can be hard to recover later.

But it’s not all gloom in the global economy: US employment is growing and cheaper oil should put more money in consumers’ pockets. A number of developments could make holding a larger number of riskier assets again preferable: further central bank stimulus, as in Japan last month; signs of deflation risks diminishing and a resurgence in global growth, particularly in emerging markets.

So multi-asset investors must know how to spot the clouds parting, and be ready to modify their portfolios in response to the changing outlook.
With markets likely to remain skittish in the year ahead, the art will be to remain vigilant to any moves on the downside and upside in markets, and to be poised to act again when necessary. - thetelegraph