Market Volatility: Why it isn’t always a bad thing for your financial plan

When the financial markets go through periods of downturn or volatility, the most common thing I hear from my clients is fear.

Fear they might lose their hard-earned savings, fear that their investments won’t recover and sometimes fear that they are being exposed to unnecessary risk.

These feelings are completely natural, and we live in an unpredictable world where markets are no exception. It is our job as financial advisers to help our clients understand that market volatility isn’t always as bad as it seems and for those who understand how to navigate it properly, it can offer opportunities.

When the markets drop, stock prices can fall, and this creates a potential buying opportunity for long-term investors who can buy shares at a lower price and lead to growth when the market inevitably rebounds.

A good strategy for navigating volatile markets is pound cost averaging. By investing a fixed amount at regular intervals, the idea is that it will try and smooth out the ups and downs of the market.

Market fluctuations are quite often seen by investors as a negative thing, but it’s actually a normal part of a healthy, functioning market. There are many reasons why the markets might fluctuate ranging from interest rate changes to natural disasters. Normally a period of significant downturn is followed by periods of recovery and growth. A great example of this was the drop in the markets due to the war in Ukraine, but now the FTSE 100 is sitting at an all-time high.

During these periods of volatility, focus on what your long-term goals are, stick to this plan and resist the temptation and the noise to make decisions based on short term fluctuations.

As financial advisers, we can also use fear and anxiety to reassess our clients tolerance to risk. If they are staying up at night worrying about the fluctuations, then this is an indicator to us that they are taking more risk than they are comfortable with. It gives us a chance to review things and find something that still helps with growth towards their long-term goals but in a way that helps them sleep soundly.

Every investor will go through periods where they feel uncertain about market volatility and how it impacts their financial plan, but a financial adviser can help them navigate it, make sense of it and ensure they stay aligned with their long-term goals. Market volatility should be seen as a way to strengthen your financial future rather than hamper it.