It's been an incredibly challenging start to 2022 for many. Spiralling inflation and the terrible conflict in Ukraine have followed hard on the heels of a global pandemic.
The shockwaves of such events are felt far and wide, and future economic uncertainty has led to stock market jitters with share prices on a roller coaster ride. For investors specifically, some may feel concerned about what the impact could be for them, and even be wondering if it’s time for a change in strategy.
We asked freelance writers and finance journalists Hannah Duncan and Alice Guy to share six tips to help investors navigate challenging times.
1. Remember stock market volatility is normal
The stock market is often volatile and can react sharply to global economic events. But that doesn’t mean investors should!
Remember that the market is a reflection of other people’s feelings. It’s how millions of other investors perceive the value of a stock at that moment in time. It’s normal that it goes up and down. In challenging times, it’s important to remember that short-term popular opinions are not always correct over the long term.
2. Invest for the long term
Investing is a marathon, not a sprint. Long-term investing can help ease the stress when share prices are volatile, because they have time to ride out the ups and downs of the stock market.
Long-term investors can also benefit from the impact of compounding. Compounding works by reinvesting returns over time. If the investment performs as expected, it works like a snowball rolling down a hill, getting bigger and bigger the longer an investor keeps investing. However, it is worth noting when it comes to investing, your capital is at risk and past performance does not guarantee future returns.
3. Don’t panic
Although it may be tempting to follow the herd and avoid losses, reacting to market events is rarely the right answer. In times like these, it’s important to stay measured and remember the long-term strategy.
If investors panic and rush to sell their investments, they could be selling at the wrong time and miss out on any recovery.
4. Aim for diversification
Aiming for a diversified portfolio lowers an investor’s overall level of risk. That’s because spreading investments between many different companies and geographies means they won’t put all their eggs in one basket. If one company fails, it shouldn’t seriously affect their investment portfolio.
An easy way for investors to diversify their portfolio is by picking an investment fund, rather than investing in individual shares. An investment fund includes many different companies and geographies, for example, the Triodos Pioneer Impact Fund spreads its investments across companies in the US, Japan and Europe. It also invests in several sectors including technology, healthcare, and industrials.
5. Consider an active manager
Knowing an active fund manager is in the driving seat can take some of the pressure off when it comes to worrying about stock market volatility. The fund manager will use their expertise to react strategically to changing market conditions, and make informed decision on behalf of the investor.
Investment management companies, like Triodos Investment Management, actively manage investment funds. Their fund managers keep an eye on economic, social, and ecological developments and monitor individual investments. If global economic conditions change or an investment is underperforming, they can assess what action to take.
6. Be a principled investor
Many investors want their investments to have a positive impact as well as increasing in value. Choosing an investment manager that actively selects sustainable investments is a simple way for investors to stick to their investment beliefs. Many have even found that investing in ESG and sustainability has delivered better performance than more mainstream investments.
Triodos Investment Management screens out investments in fossil fuels and carries out a detailed sustainability analysis on each prospective investment. It’s the fund manager’s responsibility to have an active ongoing relationship with the companies, ensuring that sustainability is given due consideration.
Interested to find out more?
For UK investors that want to start investing, Triodos Investment Management offers three funds - Triodos Global Equities Impact Fund, Triodos Pioneer Impact Fund, and the Triodos Sterling Bond Impact Fund.
Investors can find out more about the global companies included in each of the funds with this interactive map. The map shows how the companies we invest in align to the UN’s 17 Sustainable Development Goals and with Triodos Investment Management’s seven investment themes - which contribute to a more sustainable world.
To discover more about long-term trends over 2022, see the Transformation, returns and trust outlook guide (PDF download).