What are the top 4 ways to navigate volatility?

INFLATION, interest rates and stretched household finances mean we should at least factor continued volatility for the year ahead. However, that’s no reason to expect investment returns to peter out, particularly if you have a well thought out strategy.

1 - Stage your investments

Saving regularly into stock market investments is always a good idea, but this is especially true when markets are volatile. That’s because market swings lead to an increased number of opportunities to buy more fund units or shares at low prices and fewer fund units or shares at high prices.

If we are indeed headed for a recession, the stock market is very likely to gyrate as expectations about future events ebb and flow. For regular savers, the more volatile markets are, the better their average buying prices are likely to be.

2 - Invest in products that consumers either can’t - or don’t want - to do without

From Alphabet (Google) to L’Oréal companies across an array of sectors have shown themselves to be adept at continuing to make profits even in challenging economic conditions. Businesses that have been around a long time are generally worth a premium when the going gets tough.

Investing defensively across a range of sectors could be a smart move in the current environment. From consumer staples to healthcare to utilities, there are sectors likely to hold up well even as households cut back on some of the luxuries of life.

Gaining access to a diversified portfolio these companies and sectors can be made easy by investing in funds or Active ETFs, such as the Fidelity Global Demographics Fund (Managed Fund) or the Fidelity Global Equites Fund.

3 - Invest across a range of assets

The best way to hedge against volatile market expectations is to invest across multiple asset classes, as each has the potential to behave differently, sometimes, in unexpected ways.

As a general rule, investing in funds as opposed to individual shares can limit risks, which is all the more important when economic conditions weaken.

You can read a good deal about the prospects for asset classes and regions in the latest Investment Outlook.

4 - Invest in persistent growth themes

Some companies will continue to stand out against the crowd, even in a recession. The big drug companies look set to benefit for at least the next year or two from the surgery backlogs caused by the pandemic.

Semiconductor shortages are expected to continue well into next year and possibly beyond. That’s a positive for the world’s largest chipmakers such as TSMC which is held in the Fidelity Asia Fund.

Cloud computing is another growth area that’s unlikely to be derailed by a recession, because it helps businesses to reduce their costs even as they expand. Amazon, Alphabet (Google) and Microsoft are all now big players in this market.

An approach to investing in these growth themes may be allocating to Active ETFs or Managed Fund such as the Fidelity Global Demographics Fund (Managed Fund) or the Fidelity Global Equites Fund.

 *As at 30 November 2022