The question of how to invest is an important one, never more so than in a time of stock market turbulence. 2018 has seen one of the US stock market’s worst ever days, followed by a six day rally, but all adding up to a resurgence in volatility. So, how to invest (and why) in 2018?
What’s your goal? Keeping all your money in cash does not eliminate risk. So start by knowing what you need your money for, and when, as this is the key to deciding how much investment risk you are completely comfortable with.
What type of investment? Understanding the long term expected risk and return of various asset classes allows us to construct a portfolio that controls risk through global diversification.
Don’t be a trader. Because most of us are terrible at it. Those fully invested in the S+P 500 between 1995 and 2015 earned a 10% annualised return but those who missed the 10 best days earned only 6% – and 6 of those 10 best days were within 2 weeks of the 10 worst days.
Stay invested. Volatility has returned with a vengeance but stock market history teaches us that every bear market has been followed by a recovery. Staying invested has always rewarded patient investors, particularly those who continue to invest year in, year out.
Avoid emotional biases. Media headlines are impossible to avoid in times of market stress but as this recent FT article by Undercover Economist Tim Harford points out, switching off the noise and keeping your emotions out of the investment process is the best way to stick to a financial plan.
Money Smart can design a globally diversified multi-asset long term investment portfolio for you – for life. Call 01 276 0006 or email email@example.com.