Discipline and diversification help investors

Leaves are not the only thing that fall in autumn

October was a wild ride for global stock markets with a big slide and an even bigger recovery. At times it felt like other notorious autumn events like black Monday, Black Wednesday or the day Lehman Brothers slipped into bankruptcy. 

The autumn season has served up some of the most dramatic market events in history. Black Monday, when global stock markets began a 20 per cent decline, was on October 19th 1987. Black Wednesday, when the pound crashed out of the ERM (Exchange Rate Mechanism), was September 16th 1992. Lehman Brothers filed for bankruptcy and triggered the most acute phase of the recent financial crisis on the 15th September 2008.

At times, this autumn has felt like those dark days. US shares slipped almost three per cent in September and another 4.5% in a single week in October.

Was this a passing squall or the prologue to a more sustained period of volatility? Or will the current calm be the platform for another rally? Who knows?

What we do know is that markets provide a long-term return and discipline and diversification help investors make the most of it.

October turned out to be a good month in the stock markets and a gain for the month of more than three per cent made up for September’s loss.

Such short-term unpredictability can be unsettling for investors and can lead to bad decisions. It might have been tempting to stem one’s losses in October and sell US and other shares. But doing so would have risked missing the strong rally that immediately followed the slide.

Predicting the market’s future direction is virtually impossible and studies find that investors who try it tend to underperform those who remain in the market and stick to a diversified and disciplined strategy.

At Swindells Financial Planning, we take the latter approach and build diversified, global portfolios that decades of research tells us will help investors benefit from the long-term growth that the market offers. We review these strategies regularly, but are never distracted by short-term market noise, such as that which occurred this autumn.