Following the Russian Federation’s invasion of its neighbour Ukraine, global markets have been reacting and this has seen increased volatility over the past two weeks.

Whilst the invasion was expected amongst much of the intelligence community, it appears that most politicians and commentators had assumed that the worst-case scenario would be a limited incursion into the Donbass region. Asset markets had been relatively sanguine leading up to the invasion, despite the heating up of rhetoric, as they assumed some common sense would prevail. Patently the current situation is far worse than expected in many ways with the invasion being more extensive and destructive.

The unified, and economically impressive reaction from Western and G7 governments, imposing a suite of extensive sanctions, is adding to this volatility, particularly in surging oil and gas prices.

Markets hate uncertainty, therefore in such times it’s understandable to be concerned about what this means for the value of your investments and pension savings.

However, one of the key principles of investing that we hold to is that its important to take a longer-term view and not be panicked into making sudden changes to an investment portfolio.

The cost of getting it wrong

Looking back at how markets perform, there have always been peaks and troughs, but as the chart below illustrates, taking a longer-term view can pay dividends over time.

To assess the impact of divesting when big market shocks occur, we assessed two identical ‘Balanced’ portfolios*. In one portfolio, the investor pulled out when the market fell 10% and only reinvested once stock markets had risen 10% from that point. In the other portfolio, the investor stayed invested throughout. As shown in the chart, missing out on recoveries can be very costly for long term investors.

Trying to time the market can cost you

Investors who take short-term action and sell out of investments often miss out on the recovery in markets that can follow, as illustrated in the following chart.

Some of the best days in markets come right after some of the worst days in markets. For example, on 24^th March 2020, the FTSE All Share returned 8.9% growth in a single day, but this followed a 3.9% decline the previous day. If you tried to come out after some of the worst days in stock markets, you are also likely to miss out on some of the best days and as this chart shows, missing just 10 days means you could hamper your returns by almost 50% over time.

Omnis Investments is part of the Openwork Group and as our in-house investment management specialists, they produce weekly updates in plain English on global markets and you may find these helpful in keeping up to date with developments.

You can access these updates which are available as both a written summary and a short podcast from their website

I recognise the current situation may be causing you concern and I hope this information provides some reassurance. However, if you have any questions or would like to discuss how your investments are performing, please don’t hesitate to contact me.

Please note all data and observations in this communication were correct at the time of publishing.

The value of your investment and any income from it can fall as well as rise and you may not get back the original amount invested. Past performance is not a guide to future performance.