Market volatility is perpetual
After a day of reprieve on Wednesday, the markets received disappointing information about liquidity concerns for the European Banks: and any level of disappointing news in markets so volatile at present – particularly when in relation to the financial pillars that underpin commercial activity – is enough to ‘spook’ traders and start the run for the exits.“
This was a time when it was popular in the financial press to compare market volatility with a rollercoaster ride at an amusement park: ups, downs, whipsaw changes, thrills and occasional short periods of respite.
Market volatility and Investment risk go hand-in-hand
In our article ‘Investment Portfolio Diversification‘, we dealt with the key investment risks that accompany the respective asset classes: we referenced Capital, Liquidity, Income, Expenses, Taxation and CGT – indicating how each of those risks can impact the asset classes of Cash, Equities (Shares) and Property.
Market volatility in the generally accepted context, relates in particular to the Capital aspect of the asset class: how much (and how quickly) does the capital value of the asset change. There are numerous causes for price volatility: some of them are –
- economic fundamentals (supply; demand; ‘fashion’ etc)
- geopolitical circumstances (domestic/ trading partner elections; civil strife; war/ rumours of war; etc)
- weather events (cyclones, earthquakes, fires, flood, volcano eruptions etc) – and
- trade policies (free-trade agreements – bilateral/ multilateral; tariffs etc)
In our article ‘Investment risk and volatility’ we explain further how different market elements affect the market actions – and give rise to those situations that, as said above, market volatility advantages become the investors’ friend.
Using strategy to manage the impact of market volatility
The value in working with a financial planner is in the process required to develop and deliver advice – and in engagement in an ongoing service arrangement. To arrive at an investment strategy recommendation, the financial planner takes into account a number of features: financial circumstances and resources; risk aversion profile; clearly described, measurable financial goals and aspirations; timeframe – and the health of the investor is also considered. Recommendations are then formulated and presented that are in the best interest of the client.
Almost invariably, strategic advice provided in this framework will have a medium- to long-term time horizon (of five to ten years and beyond). Rarely will a period of market volatility of the type that invites comment from the alarmists in the financial press, extend more than a couple of months – and so the strategic plan will be likely to succeed over the presumed timeframe. If supported by an ongoing service arrangement, regular reviews of progress toward the measurable goals will overcome anxiety about the occasional bouts of volatility.
Wealth management at Continuum Financial Planners Pty Ltd
The experienced advisers at Continuum Financial Planners Pty Ltd have comforted clients through numerous periods of market volatility: we work to a process that ensures that your best interests are the basis of the recommendations made; and we encourage clients to undertake regular reviews of the progress toward achievement of their financial goals – we do this to our mantra: ‘We listen, we understand; and we have solutions…’ to your investment needs and dilemmas.
(This post is based on an article originally published in August 2011: it is occasionally updated and is current as at January 2020.)