Four tips for dealing with volatility in your investments

Volatility is part and parcel of investing. Rather than worry about market volatility and downturns, be prepared for them. Here are four tips to help you ride out those market fluctuations.

3 minute read

four tips for dealing with volatility in your investments

1. Be comfortable with your investment fund choice

If you feel uneasy when financial markets go through downturns, you may not be in the right investment fund that reflects the level of risk you’re comfortable with. When choosing a fund, you should consider your goals, how long you have until you need to access your investment savings, and your tolerance to stomach the short-term ups and downs of financial markets.

Growth funds experience more volatility because of their greater exposure to ‘higher risk’ assets (such as shares), but have the ability to generate higher returns in the long term. Younger investors tend to select growth funds to invest their retirement savings, simply because they generally have more time to recover from the impact of any short-term market setbacks on the value of their investments.

Those closer to retirement or using your savings to buy a first home, might want to consider choosing a fund with more exposure to ‘lower risk’ income investments (such as cash and fixed interest).

2. Stay focused on your long term goals

Once you’re comfortable with the amount of risk you’re taking, it’s good to know that history shows us that financial markets tend to recover from short term downturns.

If financial markets take a hit, it’s most likely not the end of the world as both locally and abroad, markets have a track record of recovering. If you have a longer investment timeframe, your investments should be able to recover from any short term downturns.

3. Contribute regularly

If you could avoid the bad days and invest only on the good ones where the markets gain value, you’d see great results, but unfortunately it’s impossible to predict when those good and bad days will happen. When markets drop, the value of any existing investments you have may fall. However, your regular contributions should allow you to snap up new investments at a lower price. This may also mean that as markets eventually stabilise and recover (as history has shown us tends to occur), the investments you bought at the lower price will typically increase in value as well.

4. Don’t panic

Market downturns happen. Sometimes they’re big. But they are a part of investing. Instead of focussing on the turbulence, worrying and wondering whether you need to do something now or what the market will do tomorrow, take a few minutes to check you are in the investment fund that’s right for you. Some investors want to stop the losses by switching to a more conservative fund option after they see their balance drop - but doing this risks locking in the losses and missing out on the recovery when it happens.

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The information and recommendations in this article are the personal views of the author and do not necessarily represent the views of BNZ, or its related entities.

This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser. Neither BNZ nor any person involved in this article accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.