With investment markets rapidly changing, fund and portfolio managers today are asked the same four questions:
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Where do we see markets heading?
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How much longer will central banks continue to hike interest rates?
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When will inflation hit its peak?
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How should I protect my portfolio to save it from losing value?
Without a crystal ball, it would be next to impossible for any so-called financial experts to answer any of these questions objectively. In fact, what smart investors should do right now is veer away from questions this broad entirely. Instead, investors should tune out the noise from “experts” who seem to have all the answers.
If not follow advice from so-called experts, what can investors do instead? Anyone looking to be proactive in our current market conditions should take two steps back and refocus on the fundamentals. Take the broad, external questions listed above and transform that into basic, internal questions:
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What is the logic behind my portfolio construction?
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What goals am I trying to achieve with this portfolio construction?
That said, it is very difficult to see negative returns in your portfolio and not know how to respond. Investors in this position should remember that markets are forward-looking. Overall negative returns generally do not last forever, and to weather the storm it is best to stay patient, rational and focused in order to maintain realistic investment outcomes. Timing the market is and will always be tough, but time in the market gives you the best chance to achieve your goals.
Rational, empirical, and evidence-based thinking should be the key driver in a volatile market. Focusing on the fundamentals and the original goals of the investment portfolio also allow investors to separate noise caused by volatility and concentrate on the aspects of the portfolio most crucial in getting it to alpha.
No matter how the markets are performing, there is always value to be found. Being strategic and focused on valuation is critical to uncovering these gems. Committing to a plan with proper risk management should reward an investor and help them achieve their financial objectives.
Market “noise” often causes emotional investing, where investors jump from one view to another, causing them to chop and change their portfolio. These distractions will affect portfolio returns, which in turn causes even more frustration, stress, and potential losses., something all investors try to avoid in the first place.
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