Navigating Market Volatility Series

After a strong period of performance for investment markets, it is easy to forget that periods of market volatility — such as share market pull-backs or corrections — are actually a very common and normal part of investing. What better time, then, to unpack some key concepts about navigating market volatility to better prepare you for what may lie ahead.  

Concept #1: Turn down the noise 

Noise is anything that can potentially distract us from doing what we should be doing. In investment markets, there is an endless flow of news and data that attempts to explain and predict market movements. Much of this news flow comes from mainstream media, which tends to focus on the negatives because, as the old saying goes, “bad news sells!”.

Turning down the noise, particularly during periods of heightened market volatility, is critical. It helps us avoid being swept up in emotion, and instead, concentrate on making better investment decisions based on facts. Because so much of the noise we are confronted with is short-term, the best way for investors to turn it down is to focus on their long-term investment strategy. Will the specific issues we face today, like inflation, high interest rates, and geopolitical tensions, be as relevant in five or ten years? Probably not. 

Looking back at history can also help investors put short-term noise about market events into perspective. The following chart shows the performance of the major asset classes since 1990. Despite numerous macroeconomic, geopolitical, and health events occupying investors’ attention at various times over this period, the market has continued to climb the so-called “wall of worry” and pushed higher.