Emotions always play a role in investing. We’re human. For some investors, especially newer ones, it can be hard to separate the idea of investing from the possibility of “losing it all”. If you’re anxious or insecure about your investing plan, you could make heat-of-the-moment decisions during market downturns that might not be best for your long-term goals. That’s why it’s important to acknowledge those nerves early and make sure your emotions are working for you when you invest, not against you. Here are some tips that can help you build confidence in your investing approach, no matter what the markets are doing.

Diversify your investments

Diversifying your portfolio is one way to help control risk. It’s a fancy way to describe putting your eggs in many baskets—or in this case, putting your money into high-, moderate-, and low-risk investments, both domestic and international.

Your portfolio will still have the growth potential that comes from higher-risk shares, but you won’t be as vulnerable during market downturns because you’ll ideally also hold less volatile investments like bonds. As the chart below shows, while shares have sometimes enjoyed much bigger gains than bonds, they have also suffered much bigger losses. The breakdown of shares and bonds in your portfolio determines how much risk you take on when you invest, and you have the freedom and flexibility to choose a mix that feels right for your life. 

The performance of shares and bonds from 2001 – 2021

Past performance is not a reliable indicator of future results.
Notes: Returns shown in GBP, with gross income/dividends reinvested. Indices used as proxies – Bonds: Bloomberg Global Aggregate Total Return; Shares: FTSE All-World Total Return. The performance of an index is not the exact representation of any particular investment. As you cannot invest directly into an index, the performance shown in this table does not include the costs of investing in the relevant index.
Sources: Bloomberg as at 31 December 2021.

Make saving automatic 

Some investors worry they’re not saving enough to reach their long-term goals—or that they’re not doing enough to keep their financial lives on track. You can take some of that uncertainty out of the equation by setting your savings on autopilot. Consider putting a percentage of your pay or your annual salary into your investment accounts. You’ll be taking positive action to stay on track—and that’s a great feeling!

Think long term 

Successful investing isn’t about reacting to today’s news or to the latest trends bubbling up on social media. It’s about letting your long-term goals guide your financial choices. That’s what inspired you to invest in the first place.

You might be tempted to pull your money out of the market during periods of volatility. But if you do that and reinvest when the markets calm down, you could end up farther away from your goal. Why? Because by then, you may have missed out on days the markets recovered somewhat. While a measured, disciplined investing approach isn’t always easy, it can be worth it in the end.

If you are still worried, consider pound-cost averaging 

Say you have a large lump sum of money to invest. Maybe it was an inheritance or a gift. Or maybe you found £50,000 behind your sofa (what if?). If you’re very risk-averse, one of the first thoughts you might have is “what if I invest all this money at once, and the market drops right after?” If that sounds like you, pound-cost averaging might bring you some peace of mind.

Pound-cost averaging means buying a fixed amount of a particular investment on a regular schedule, no matter what its share price is at each interval. Since you’re investing the same amount each time, you automatically end up buying more shares when prices are low and fewer shares when prices rise. This can help you avoid that potential buyer’s remorse of investing a lump-sum amount when prices are at their peak. Incremental investing is one way to help you get comfortable with the market’s natural movement, and it can be especially helpful for self-identified worriers.

Remember: Strong financial plans are built with market volatility in mind. If you diversify your holdings, invest regularly and stay focused on your big-picture goals, you can feel confident that you’re doing your part to set your portfolio up for success—and set yourself up for ongoing financial wellness.