Trade war worries? How I’d keep calm through the market volatility

Current market volatility is a reminder for investors to add some stability to their portfolios through exposure to different sectors of the market.

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.

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.

Sell in May and go away is an often-repeated saying in the markets. In some years, this old adage doesn’t apply, but the markets lived up to their seasonal reputation last month. Major market averages are showing weakness in early June too.

And all of this is starting to make investors feel a little anxious. But what would you rate as one of the most reliable safeguards against stomach-churning volatility in the stock market?  I would say diversification, both among your wider investments and specifically within your share portfolio. So June might be a good month for you to revisit your investment goals for 2019.

Risk and return

Does it feel as if there is nowhere to hide in these crazy markets? Sometimes yes, even though we all know that in investing, risk and return go together. Where there is a potential return, there is also a potential loss.

For example, since the end of the financial crisis of 2008, most technology shares have been investor darlings. There seems to have been no limit to how much some of these stocks can appreciate. However, the past few weeks have also shown investors how far and how fast they can fall.

On the other hand, a savings account at a UK-regulated bank or building society guarantees the safety of your money for up to £85,000 per person, yet offers a really low annual return.

Asset allocation – which can simply be defined as how you’d divide your investments among shares, bonds, bank-deposits, as well as other types of investment vehicles such as real estate or physical gold – determines your portfolio risk and returns.

The aim is to strike the right balance between more potentially volatile assets such as shares and more stable ones.

The right asset mix

Once you have decided how much of your wealth you would like to have in equities, it is time to look at how you want to allocate your money among different types of shares. Market volatility often attracts investors to utilities, healthcare, consumer staples, and possibly gold stocks.

You may also think about buying into the shares of established companies that also pay dividends and have conservative payout ratios. Thus you’d have some relatively safe passive income while you wait for the markets to turn around.

Diversification will not eliminate all the risk in your equity portfolio. But your long run risk/return ratio is likely to be more attractive.

If the decade-long bull market is truly beginning to lose steam, a share portfolio constructed of different kinds of companies and sectors will, on average, yield higher returns and enable you to ride out the volatility of the stock market.

In other words, if you are tired of the volatility, portfolio diversification may be just what the doctor ordered.

Are you in the markets for the long term?

While your share portfolio balance may have taken a hit in the past few weeks, now is not the time to panic. 

At The Motley Fool we believe in holding shares for the long term. Strongly-performing shares tend to keep on winning so a fall in their share price during a market downturn might give you the opportunity to buy more of them, as long as you still believe in the fundamental story behind those companies.

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.

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

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »