Invest with composure
Market volatility is a fact of life. While global markets offer access to attractive long-term capital growth and income opportunities, market pullbacks happen frequently. Fortunately, there are several strategies that investors can use to make sure they are best positioned to ride out the market’s ups and downs.
Longer time horizons can dampen the impact of market volatility.
Selling when markets are volatile risks locking in losses.
Diversification can stabilise portfolios in volatile markets.
Take a long view to manage volatility
History suggests investors are much less likely to suffer losses when investments are held over longer periods of time, particularly for balanced portfolios. It's therefore important to keep a long-term perspective.
Range of equity and bond total returns
%, annualised total returns, 1950-present
Source: Strategas/Ibbotson, J.P. Morgan Asset Management. Large cap equity represents the S&P 500 Composite and Bonds represents the Strategas/Ibbotson US Government Bond Index and US Long-term Corporate Bond Index. Returns shown are per annum and are calculated based on monthly returns from 1950 to latest available and include dividends. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 2022.
Don't panic sell when markets drop
Drawdowns are part and parcel of investing. Stock markets have mostly ended in positive territory, even in years marked by declines of more than 10%. Selling when markets are volatile therefore risks locking in losses when markets bounce back.
FTSE All-Share intra-year declines vs. calendar-year returns
%, despite average intra-year drops of 15.5% (median 12.2%), annual returns are positive in 25 of 36 years
Source: MSCI, Refinitiv Datastream, J.P Morgan Asset Management. Returns are local currency price returns. Intra-year decline refers to the largest market fall from peak to trough within the calendar year. Returns shown are calendar years from 1980 to 2021. 2022 is year-to-date. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 2022.
Spread risk across regions, asset classes and strategies
In the last 10 calendar years, a portfolio investing in a combination of developed market and emerging market equities, investment grade and high yield bonds, property securities, commodities and hedge funds has delivered healthy returns with much less volatility than investing in equities alone.
Asset class returns (EUR)
Source: Bloomberg Barclays, FTSE, J.P. Morgan Economic Research, MSCI, Refinitiv Datastream, J.P. Morgan Asset Management. Annualised return and volatility covers the period from 2012 to 2021. Vol. is the standard deviation of annual returns. Govt bonds: Bloomberg Barclays Global Aggregate Government Treasuries; HY bonds: ICE BofA Global High Yield; EMD: J.P. Morgan EMBI Global Diversified; IG bonds: Bloomberg Barclays Global Aggregate – Corporates; Cmdty: Bloomberg Commodity; REITs: FTSE NAREIT All REITS; DM equities: MSCI World; EM equities: MSCI EM; Hedge funds: HFRI Global Hedge Fund Index; Cash: JP Morgan Cash Index EUR (3M). Hypothetical portfolio (for illustrative purposes only and should not be taken as a recommendation): 30% DM equities; 10% EM equities; 15% IG bonds; 12,5% government bonds; 7,5% HY bonds; 5% EMD; 5% commodities; 5% cash; 5% REITs and 5% hedge funds. All returns are total return, in EUR, and are unhedged. Past performance is not a reliable indicator of current and future results. Guide to the Markets - Europe. Data as of 31 March 2022.
Insights for challenging markets
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Building resilient portfolios
In an unpredictable world, investment portfolios need the flexibility to adapt and thrive, whatever lies ahead. This means investing in funds that can provide exposure to the market’s upside when things are going well, but that can also help to provide stability when times are tough.
Consider quality equity exposure at the heart of your portfolio, through large cap, developed market equity funds. These strategies tend to be less volatile than smaller cap and emerging market equity funds.
Unconstrained fixed income
Investing in unconstrained bond funds can help provide access to the diversification benefits of fixed income, while being able to adjust interest rate risk and credit risk as market conditions change.
Consider strategies that can provide returns with a low correlation to risk assets, and have the ability to dial up or dial down risk across the market cycle.
A further level of diversification to traditional equity and bond portfolios can be achieved via exposure to liquid alternative funds, which have the ability to generate positive returns in various market environments.