Investing when markets are down: how to deal with market uncertainty

22 Apr 2022

AD – this article was created as part of an on-going partnership with Wealthify.

It’s normal for markets (and the value of your investments) to fluctuate over time – just think of your investment journey as a winding road or a rollercoaster with many ups and downs. This is because the performance of financial markets can be impacted by various factors, such as economic trends, interest rates, global political events, and new variants of COVID-19 emerging (as the past few years have shown).

However, despite this knowledge, we know that market dips can still be concerning even for the most experienced of investors!

Worried about what to do when markets fall? As we explained in the first article in our volatility series with Wealthify, staying calm and focusing on the long-term could help you to ride out market dips as these could be temporary. In fact, Bloomberg data shows that those who invested in the FTSE-100 for any 10-year period since 1984 had an 89% chance of making a positive return on their investment.

But if you don’t feel like sitting back and want to take a more proactive approach to help safeguard your investments when markets are down, here are some actions that you might want to consider.

Setting up a direct debit in your investment account

This is a strategy that some people call ‘pound cost averaging’ or ‘drip-feeding’. Regularly investing small amounts over time means that sometimes you’ll buy low and sometimes you’ll buy high, which could help to remove any emotionally driven reactions to market fluctuations.

It’s as simple as setting up a direct debit to your investment account. Many investment platforms (like Wealthify) will do this for you.

Diversifying your investments

As they say, ‘don’t put all of your eggs in one basket’. Instead, spreading your money across as many different investments as possible (rather than investing in one type of asset) could help you to manage risk along the way. A fully diversified portfolio might include a range of stocks, bonds, property, cash, and perhaps some alternatives like commodities too (if it suits your risk style).

If don’t have time to do the research or you simply don’t feel comfortable choosing your own investments, then Wealthify will create a fully diversified investment portfolio for you based on how you want to invest and the level of risk you want to take.

Checking your risk tolerance

As we keep saying, markets are volatile, and the amount you have invested can go up as well as down over time. With this in mind, you might want to think about how much risk you are willing to take with your investments. As part of this, consider how much you would be comfortable losing before you withdraw your money.

Just remember, if you cash in while the value of your investments are down, then the losses will become real, and you won’t be able to benefit from the market potentially recovering.

Re-evaluating your investments when needed

When investing, you will no doubt start with a plan and a goal in mind, but these will almost certainly alter over time – especially if you are intending to invest for a longer period. When your situation changes, it could be helpful to re-elevate your portfolio and check if it is still fit for your purposes.

If you invest with Wealthify, they will regularly rebalance your Investment Plan based on how the markets are performing. You can also change the level of risk in your plan if you feel like it’s needed.

We know that at the end of the day, no one wants to lose money. And with inflation (and the cost of living) continuing to rise, it could be more important than ever to look at ways that you could make your money work harder for you.

So, what could your next steps be?

For experienced investors who are willing to do the research (and actually have the time to do this), markets being at a low could offer a great opportunity to buy undervalued investments ready for when the market recovers.

But if you feel as though you haven’t got the time or expertise to do this yourself, then why not consider using an investing platform that will keep an eye on the markets and manage your investments for you?

Wealthify is an investment service that makes it simple and affordable to invest, starting with as little as £1. Their team of experts will build your perfect Investment Plan and take care of all the investing decisions for you. All you need to do is pick your Plan type (such as a Stocks and Shares ISA or a General Investment Account), decide how much you want to invest and how often, and choose a risk level that suits you.

Their experts will stay on top of economic and market trends, news, and global political affairs that impact the markets, so they can build you a fully diversified portfolio and make decisions to help keep your Plan on track. Find out more about how Wealthify invests and how easy it could be to get started.

Past performance is not a reliable indicator of future results.

The tax treatment depends on your individual circumstances and may be subject to change in the future.

As with all investing, your money is at risk. The value of your portfolio can go down as well as up and you could get back less than you put in.

You should seek financial advice if you are unsure about investing.