Stock market volatility: stick or twist?

The news is full of stories about the turbulence of the stock market But how volatile are the markets really, and what should I do about it?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young mixed-race woman looking out of the window with a look of consternation on her face

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

We encourage a buy-and-hold approach to the stock market here at the Fool UK. It’s not simple to find quality companies with excellent prospects and buy them at an attractive price, but when such an opportunity presents itself, I’ll take it. I’ll hold stocks for years, even decades, assuming their fundamentals don’t change for the worse.

Volatility brings opportunities. It tends to rise when the markets are heading down more often than when they’re heading up. Declining markets tend to be volatile so, it’s at these times when I should be on the lookout for bargains.

But such times usually mean existing holdings are taking a hit. It’s hard not to react when a stock’s price is being dragged down by sour market sentiment even if, operationally, the company behind the stock seems to be doing okay. There’s are tensions linked to a buy-and-hold approach. Bargains are more likely to be found in volatile markets. But existing portfolios, constructed presumably of previously purchased bargains, will suffer during volatile times. Not selling the things that are probably declining in value but instead buying more of the same type of thing takes discipline and courage.

Is the stock market volatile right now?

Is today’s stock market volatile? Of course, it is — what a silly question! It’s all over the news. But, rather than letting the media narrative guide me, I prefer to do my own research.

On a 21-day annualised basis, the volatility of the FTSE All-Share is 16.2% right now. The average for the last five years is 14.1%. So, the FTSE All-Share is just about showing above-average turbulence at the moment. And volatility has increased from a recent low point.

A line graph showing stock market volatility on a rolling 21-day annualised basis for the last five years, two large peaks are present, and todays volatility is shown to lie fairly close the the average

The ups and downs of the market have been above average for much of 2022. The stock market was relatively calm in 2021. This contrast makes today’s situation seem extreme. However, it’s worth pointing out that volatility right now is nowhere near the 69.8% seen during the coronavirus market crash in 2020.

What I’m doing

Refusing to be guided by the news cycle is one step to dealing with times like these. As the exercise above demonstrates, an investor might be led to believe that right now, the stock market is more turbulent than ever. It’s not. But there can be no denying that 2022 has been disappointing. So, what do I do in such times?

I stick rather than twist. I don’t rush to sell shares in companies that I think will do well in the long term, even if their prices are sliding. Most market participants are bad at timing markets. Look at the disclaimer on any trading platform — it will say that most retail traders lose money.

Since I have no reason to believe I can successfully ‘time’ markets, I invest consistently in what I believe are quality companies with funds I don’t need for three-to-five years when volatility is both high and low. For example, I’ve recently added to my positions in GSK and Vistry. I buy at high and low prices over time, which should average out over the long term. And if I buy quality stocks and build a diversified portfolio, the return on my investment over time should be good.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James McCombie has positions in GSK plc and Vistry. The Motley Fool UK has recommended GSK plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

2 brilliant bargains I’m considering for my Stocks and Shares ISA!

These FTSE 100 and FTSE 250 shares offer exceptional value on paper. Here's why I'm considering them for my Stocks…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Dividend Shares

How much passive income could I generate with just £10 per day?

Ken Hall wants to create his £10,000 yearly passive income dream by investing just £10 every weekday day in Footsie…

Read more »

Investing Articles

Is the Rolls-Royce share price too high? Here’s what the experts say

The Rolls-Royce share price has surged over two years, representing one of the FTSE 100’s greatest success stories. But is…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

A top S&P 500 growth share and an ETF I’d buy this November!

I think this S&P 500 share and exchange-traded fund (ETF) could be brilliant additions to my ISA or SIPP right…

Read more »

US Stock

Here are the best-performing S&P 500 stocks after the US election result

Jon Smith notes some of the largest gainers from the S&P 500 yesterday and explains how the election result has…

Read more »

Growth Shares

2 UK stocks knocking on the door of promotion to the FTSE 100

Jon Smith points out a couple of UK stocks that he feels could be ready for the big league based…

Read more »

Investing Articles

Rolls-Royce shares just fell 7%. Is it time to buy?

This investor in Rolls-Royce shares takes a look at the FTSE 100 engine maker's trading update to see what caused…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

What’s going on with the Auto Trader share price?

Paul Summers takes a closer look at why the Auto Trader share price has tumbled despite the company posting higher…

Read more »