5 steps to deal with market volatility
By Kirsten Hastings, 7 Feb 18
With low volatility having been the norm for nearly three years, the sharp drop experienced by global markets earlier this week awakened some fight or flight responses. AJ Bell offers five lessons to help investors cope with market volatility.
“While Monday’s 1,175-point drop in the Dow Jones Industrials was the biggest fall on record in terms of points, it was nowhere close in percentage terms.
“The US index may have lost ‘just’ 508 points on Black Monday in October 1987 but that equated to a 23% drop. And a mere 38-point plunge on Black Monday in 1929 meant a 13% drop, as part of a crushing string of downward movements which comprised the Crash of that year, so some context must be maintained.
“The US has seen four days already in 2018 when the S&P 500 index moved up or down by more than 1% during a trading day. It managed that just eight times in 2017 but it managed it 137 times in 2008, when the market last crashed – that is more than one such change for every two days.
“Markets do best when they are relatively calm. However, it is worth noting that extreme volatility can be a buy signal and an increase in volatility in 1998-2000 and 2005-07 did not prevent further gains, although the build-up did herald an eventual smash.
“If history repeats itself then markets could become a lot wilder, even if they could still advance further before they finally hit the wall.”
Tags: AJ Bell | Investment Strategy | Volatility
