Market volatility – opportunities for investors

The spread of coronavirus has created a spike in volatility, with most major stock markets posting big losses at the end of February. Despite this, at Architas we believe investors should not panic. Here we explain why.

Volatility is normal

It’s important to bear in mind that volatility and corrections are not new. Stock markets regularly go through bouts of volatility, and historically we have seen a correction in a major global stock market almost every year. 

A return to profitability

However, for long-term investors we don’t believe these should be a cause for concern. Some of the most notable stock market crashes in recent times include the bursting of the dotcom bubble in 2000, the global financial crisis in 2008 and more recently the global sell-off in the fourth quarter of 2018. Although these were uncomfortable for investors at the time, these big crashes appear like small blips when we look at global stock market returns over a long time frame. In each occasion we see a return to profitability for those who weathered the storm and stayed invested. 

Don’t lock in losses

It’s natural to be concerned when markets fall, as nobody wants to lose money. However, withdrawing money after a correction is a guaranteed way to lock in losses. Furthermore, it can mean missing out on any potential market rebound, as historically some of the best days for the stock markets have occurred during periods of extreme volatility. It is said that ‘time in the market is better than timing the market’, and as long-term investors we believe this is true.

Buying opportunities

Although volatility is often seen negatively, it’s important to note that it can also provide buying opportunities. During volatile times, panic selling can drive prices far below where they should be. This can potentially create opportunities for other investors to pick up assets at bargain prices.

It’s important to stay diversified

At Architas we also believe it’s especially important to remain diversified during periods of volatility. This is because different types of investments tend to behave differently. For example, when investors lose their risk appetite, equities tend to fall while less risky assets go up. We have seen this recently with perceived ‘safe haven’ assets such as gold and government bonds rising strongly at the end of February. Holding a mix of different assets can help to reduce volatility in a portfolio, giving investors a potentially smoother ride with fewer ups and downs.

Issued by Architas

These materials are for information purposes only and are intended to broaden readers' awareness of financial markets and of the investment management industry. The intended audience is staff, distributors, clients and potential clients of the AXA Group. These materials are neither investment advice nor an offer or invitation to buy or sell or otherwise participate in any investment activity or strategy. The content is based on information sources that are deemed reliable at the time of writing. The information presented can be changed without prior notice. Architas has no express or implied warranty, guarantee or statement as to the accuracy, suitability or completeness of the information provided. All rights are reserved. Without the prior consent of the copyright holder, no part of this publication in any form or by any means (mechanical, by photocopy, recording, or otherwise) is allowed to be published, copied or emailed or stored in an information system. These materials originate from Architas Multi-Manager Limited ("Architas"). Architas is a company registered in England No. 06458717, registered office: 5 Old Broad Street, London, EC2N 1AD. Architas Multi-Manager Limited is authorised and regulated by the Financial Conduct Authority and is entered on the Financial Services Register: number 477328. These materials are not intended for audiences in the United States of America.