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2 Simple Ways To Beat Volatility And Protect The Value Of Your Investments

By David Pritchard


This year, there has been a lot of volatility around the world. We have seen volatility in response to the war in Ukraine and volatility in terms of fiscal tightening – governments trying not to borrow, spend or invest so much. Finally, the slowdown in the economy, with extremely high inflation and rising interest rates, has also led to volatile stock markets.

In a climate like this, how do you invest so you don’t lose all of your money?

Understanding the markets is the first step.

The American stock market

The American stock market is the biggest in the world. What happens with their stock market, economy and the American Federal Reserve (the organisation managing the US economy, similar to the Bank of England in the UK) affects other stock markets worldwide – including here in the UK.

In January, the Federal Reserve decided that they would slow down their support of their economy, in a process called “quantitative easing”, and aggressively raise interest rates. As a result, US interest rates are about twice as high as the UK rates – this is why the pound has been so weak against the dollar this year.

This has particularly affected the stock market in the US, especially tech, including companies like Netflix, Google, Tesla, Amazon, Apple, and Meta (Facebook’s new branding). Some of these are down over 50% over the year – which represents a big part of the American stock market. This certainly hasn’t helped any of the other stock markets around the world.

The UK stock market

In the UK, there is a divide between the big companies and industries compared to the mid and small cap companies below them. The four big sectors in the UK are oil and gas, pharmaceuticals, banking, and minerals and mining. All of these have held up relatively well – they are only down as part of the index a very small amount this year.

Pharmaceuticals are generally doing well. There is a shortage of minerals around the world, so demand for mining has stayed high. Rising energy prices mean that oil and gas have made considerably more profit, and rising interest rates have meant that the banks also have made more profit. 

On top of this, most of these companies earn their income from overseas – a lot of which is in dollars. When the dollar is high and the pound is low, they are making increased profits without even having to sell any more! This means that the shares for companies in these sectors have been relatively untouched this year, thanks to circumstances beyond their control.

The mid and small cap companies in the UK, on the other hand, tend to get most of their revenue from the UK. As a result, they have been in a position where they have really suffered due to recent volatility. 

2 ways to protect your investments

So, how can you invest in such a volatile financial climate so you don’t lose all of your money? Firstly, what I have learnt from 40 years of investment is that, at the end of the day, it has always been about diversification. Outside of your deposits, do not invest all of your money into just one company, one fund, one sector, or even one geographic region.

The more diversified your investments are, the less volatile they are going to be.

Secondly, once this money is invested, you need to regularly review and assess your investments. You should not just pick one portfolio and then blindly stick with it forever. Good financial advice is effective here.

Diversifying your investments

You should always keep a rainy-day fund easily accessible in a bank account. This would be the money that you might need over the next 12 months for holidays, emergencies, swapping your car, doing maintenance on your house, and so on. Anything else should really be invested long term, which means five years plus. 

Your goal is to manage your investments so that you are beating both the deposit rates and inflation. Inflation is particularly important to consider – at the moment it’s around 10%. Long term, the only hedge against inflation is equity investments. This means that you should only have invested monies that you don’t want to use over a minimum of five years.

There are several ways you can invest, including equities – both in the UK and overseas – fixed interest – which includes corporate bonds or gilts – or property. We recommend having a balanced portfolio that combines all of these. This portfolio would invest in both UK and overseas stocks and shares, property funds, and fixed interest funds. 

This will give you some diversification and protection. All of these investments will move and change at different times and in different ways. If one, or several, of the investments you have made are suffering, then others might still be going up and doing well. 

Regularly reviewing the performance of your funds

Different funds might serve different purposes and meet different needs. When seeking financial advice from a fund manager, what you need to be aware of is their area of expertise – a fund manager investing in the UK might not have the same expertise overseas, for example.

Therefore, in order to protect your investments, you should look at a fund manager’s performance over the medium to longer term against the other funds that do the same thing as yours. You should be reacting to what is happening to the economy and stock markets (both in the UK and overseas) and assessing the performance of your funds and their fund managers – reviewing these regularly is vital.

How independent financial advice can help

This is what a good independent financial adviser will be doing for you. A good adviser will assess the risk you want to take and choose the best funds in which to place your money. They will also help you diversify and adapt your investments so that you do not end up at risk of losing all of your money.

Over the 25 years that Applewood Independent has been going, no client we have had has ever lost all of their money. In fact, no client has ever lost money over a five-year period! This is entirely because we have diversified our clients’ investments into different sectors, areas and fund niches, and we review them on a regular basis. 

If you put all your money in one company’s shares, then if that company goes bust, you will of course lose all your money. We never do that. The funds we choose for our clients make investments spread out over hundreds of different actual investments. This diversification is what helps you beat inflation, beat the return on your bank or building society, and get the income you want while keeping your money safe and secure over the long term. 

For more useful advice on how to beat volatility, listen to our new podcast A Dab Of Investment.

If you’d welcome our input, expertise and experience, please get in touch by emailing me at david@applewoodindependent.co.uk.

The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.

The value of your investment can go down as well as up, and you may not get back the full amount invested.

Past performance is not a guide to future performance.