How to handle the recent volatility

25 October 2018

In recent weeks global markets have seen some serious volatility, starting in the US and filtering through to our local market. Last time we saw these kinds of market movements was in February this year.
The reasons for the recent bout of volatility has been a combination of factors; overvalued markets, hikes in US interest rates, trade tensions between US and China, rising corporate debt levels and China’s outlook being less positive.  

There are concerns out there, but on the other hand, there are positive signs of continued growth. For example, the US reporting season is still expected to deliver strong results.
The reality is that volatility can and should be expected when investing over the long term, as all markets tend to move in cycles.

Apart from the brief volatility earlier in the year, markets have had an exceptional run with steady growth, low inflation and interest rates. However, with markets continuing to trade at high valuations, we can expect more volatility.  

So is there a need to worry?

No, although volatility certainly shouldn’t be ignored, the extent you need to consider it depends on your own situation and your investment timeframe. If you are investing with a long-term view you can afford to be more relaxed than someone nearing retirement or the point when they need to access some of their capital.

Either way it is always a good idea to take a look at your portfolio to ensure it matches your timeframe and the level of risk you are willing to take.

Quite often investors don’t realise how risk averse they are until there are changes in the market and lately we have had a very smooth ride, so these bumps can take some getting used to. Your investments should never keep you up at night – if they are, you are probably not in the right fund. Talk to us about other options for you.

It is important to remember, however, that volatility is part of the share market cycle and the price we pay for higher potential returns over time. We like to look at volatility as an opportunity to invest more using cash we have ready to deploy to capitalise on market changes.

Our funds have had a defensive tilt for some time, meaning we have held more cash than a traditional growth benchmark to be able to react when opportunities arise during market corrections such as the most recent one we have seen.

The way we invest doesn’t change and we always watch our holdings closely. All our funds are actively managed with a long-term view and we focus on holding a concentrated selection of quality companies with sustainable business models and solid investment fundamentals.

Ultimately, investing will always be about the length of time spent in the market and if you have a long-term view, this recent volatility could be a good opportunity for some additions to the portfolio.

Assess your investor/risk profile

To assess your investment timeframe and appetite for risk download our Risk Profile Guide. We recommend that you assess this annually or if your situation changes. If you have any questions, contact the QuayStreet Service Team - 0800 782 900 /