Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest.
HAVE you noticed the ‘Important information’ notices which are dotted all over our website? There are a number of versions (depending on what the product, service or information is on the page), but the one you’ll see most often - like the one at the top of this page - is:
Important information - The value of investments and the income from them can go down as well as up, so you may get back less than you invest.
We put this risk warning up front as a gentle reminder that there are no guarantees when it comes to investing (which is why you should only invest if you’re ready).
The simple fact is that markets rise and fall - sometimes slowly, sometimes rapidly. And it’s these highs and lows that you’ll often hear described as volatility. Accepting that volatility is part and parcel of investing is important. It’s also worth thinking about how you’ll deal with volatility when faced with it.
How to prepare for volatility
Step one - start with a plan
We rarely find that people invest simply for investing’s sake. They’re saving for a deposit on a house. They want to pay for their child’s future education. They’ve got their sights set on an around the world tour when they retire.
It’s good to know what you want from your investments so that when volatility strikes, you can remind yourself of your goals and what your long-term investment decisions were based on. It helps to keep a level head in these situations and having a plan is always good to fall back on.
Step two - invest for the long term
Investing should never be treated as a get-rich-quick scheme. If you keep your sights set on your long-term goals, you give your savings a far better chance of riding out any market highs and lows. You also give your savings a greater opportunity to grow, thanks to the magic of compound interest. This is when any profits or income generated from your investments are re-invested. Over time this will compound, as effectively your savings are getting interest on interest, helping them to grow even faster.
Step three - set up a regular savings plan
There are a few reasons why a regular savings plan is a good idea. Putting away a little and often, allows you to invest what you can afford without it making a massive difference to the way you live your life. It also helps avoid the temptation to time the market (which is where you try to invest at a lower price in the hope it will rise - something even the experts find tricky). By saving regularly, sometimes you’ll catch the highs and sometimes the lows. But, over time, it will bring down the average price you’ve paid for the investment (otherwise known as pound-cost averaging). This can really help to lessen the impact of volatility in the long run.
Step four - select a range of investments
Some investments carry higher risks than others (cash funds sit at the lower end of the risk spectrum, while individual shares sit at the higher end). Where you’re invested (which could be almost anywhere in the world) also carries different levels of risk. Having an appropriate mix of investments can help minimise the impact of volatility on the value of your investments.
It’s a case of not keeping all your eggs in one basket. If you’d like to know more about investing basics, you can take a look at our principles for good investing here.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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