The markets are volatile, well at least more volatile than they have been. The FTSE 100 index has already had two days this year where it has moved by more than 2%, in 2017 it only did that once, in the entire year. This has a tendency to make investors cautious and as a result potentially miss out on the benefits of that volatility.
History suggests that near term volatility caused by political or economic uncertainty and sentiment has little long term effect on the stock market. The key here is that investing is a long term activity and if you take a long term view you can ignore short term volatility. Of course, this approach comes unstuck if you become a forced seller for any reason at a point where the market has taken a downturn. This can be addressed by ensuring enough assets likely to be required in the short term are held in less volatile instruments, by investing regularly and by holding a diversified portfolio.
However, had you invested at the peak of the market in late 2007 before the last financial crash, the market is now above that level – and of course you would have received dividend income along the way. Had you invested at the peak of the 2000 dotcom boom, by 2007 the market had recovered to those levels and by 2015 had again surpassed the levels achieved back at the end of 1999.
The volatility and any market ‘correction’ can also provide a buying opportunity. The concept known as ‘pound cost averaging’ which applies where you invest a little and often in to the market means that when prices fall your regular investment can buy more shares (or units if investing in a fund).