Seven steps to investor confidence

In this article, we revisit some of the core foundations of good investment discipline. It’s a topic that’s always worthwhile keeping in mind, but even more so during periods of market volatility.

The violent return of volatility this summer, and the expected additional bouts later in the year, serve as a timely reminder than an investor’s long-term strategy needs to combine resilience and agility. Finding and striking an appropriate balance between the two can be the difference between success and failure when short-term events throw us a curve ball. 

Seven steps to peace of mind

While nothing is guaranteed when investing, the following steps could help you overcome short-term turbulence by reframing your mindset and focusing on the things that truly matter to you.

1. What are your goals?

It might sound like an obvious thing to say but it’s important to get off on the right foot when you invest. A big part of that involves being clear on what you’re hoping to achieve as an investor.

If your finances and investments are misaligned from the outset, you risk achieving outcomes that don’t support your ultimate goals. 

Always be clear on what you’re hoping to achieve in the long term. 

2. What’s your plan?

When you’re clear on your ambitions, you then need to map out the plan for how you’re going to achieve them. Again, it might sound obvious, but you’d be surprised how easy (and costly) it can be to overlook the basics.  

Given that life is unpredictable, it would be logical to build a plan that accounts for different scenarios. So, for example, if you struggle with the stress of short-term market turbulence, your plan needs to give you unwavering confidence that it can weather a storm.

It is well worth investing the time in building a plan that helps you avoid making knee-jerk and potentially costly decisions in the heat-of-the-moment. And ideally your plan will keep you accountable. 

3. Always expect the unexpected

As mentioned above, life is unpredictable. It can also move fast, so your investment processes and portfolio need to reflect that. 

Short-term market shocks can be quick and violent but can be better tolerated by having an investment process built on diversification (e.g. of assets) and a long-term time horizon. Both things typically give investors an improved chance of mitigating risk and capitalising on opportunity. 

4. How are you thinking about risk?

As an investor, risk is the price you pay for participating in the market. You can dial up, or dial down, the extent of the risk you take, but it’s part-and-parcel of the investment journey. 

It’s crucial to remember – particularly when markets jolt – that risk isn’t abnormal. It can make investors nervous but it’s often manageable via robust and rigorous investment processes being followed.  

5. Do you recognise your biases and emotions? 

Uncertainty can spook some investors and in periods of sharp market movements, the risk grows that short-term decision-making might hinder the pursuit of long-term goals. 

It’s important to understand how you react in times of stress so that you can better cope during volatile periods. Having a plan, and regularly reminding yourself of your long-term objectives, are two ways of framing your mindset when market turbulence kicks in. 

We are not saying you need remove all emotion. But having a handle on your reactions will set you in good stead. 

6. It’s a marathon not a sprint

Investing should be seen as a long-term activity, and investors should beware the urge to tinker. 

Making frequent tweaks to a portfolio’s holdings might feel like you’re being proactive, but it risks holding the portfolio back and acting as a drag on performance.

While performance is never guaranteed, there is more-often-than-not value to be found in selecting and sticking to a long-term strategy and keeping a lid on unhelpful trading activity.

7. Beware the media

Daily news headlines are designed to grab your attention, but they should never determine your investment strategy. 

Don’t panic when you see a story in the press that causes concern. Markets invariably beat to their own drum, and the sooner you can see the headlines for what they are, the better.

Next steps

Investing can feel uncomfortable when markets wobble and there is always a risk of loss. But broadly speaking, being invested and staying invested for the long haul, is where the value typically lies.

The seven steps described above should hopefully help frame your mind, especially when the temptation to panic creeps in.

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