With all the volatility in markets at the moment, we have outlined 10 key principals to help investors keep their wits about them.
#1: The benefits of regular investing stack up
Making smaller investments at regular intervals, known as dollar cost averaging, can help you lower the can help you lower the average cost of your investments.
#2: Volatility is normal in long-term
investing It is inevitable and the result of investors reacting to economic, political and corporate factors. Be prepared for volatility, and you’ll likely react rationally.
#3: Reinvest income to increase total returns
Reinvesting dividends can provide a considerable boost to total returns over time, thanks to the power of compounding. Be disciplined and patient.
#4: Diversification helps smooth returns
Investments vary in risk and volatility. Diversifying your portfolio across asset classes, sectors and regions, can help to reduce the effect of volatility.
#5: Don’t be swayed by sweeping sentiment
The popularity of investment themes ebbs and flows. Take a discriminating view and don’t allow the euphoria or pessimism of the market to cloud your judgement.
#6: Avoid stopping and starting investments
Remain invested during volatility and you can typically benefit from the market’s long-term upward trend. Time, upward trend. Time, not timing, is the key to investing.
#7: Risk is usually rewarded over the long term
While equities carry a higher risk than cash or government bonds, data shows that over time, investors are rewarded for the extra risk they take.
#8: Corrections can create attractive opportunities
Corrections are a normal part of stock markets and are often a good time to invest in equities, because valuations become more attractive.
#9: Invest in quality stocks for income potential
Sustainable dividends paid by high quality, cash-generative companies are attractive during volatility, are attractive during volatility, as they may offer regular income.
#10: Active investing can be a very successful strategy
At Fidelity, we believe strongly in active management. Our bottom-up approach means we are well-positioned to invest during bouts of market volatility.