Making Sense of Market Volatility: What’s Happening and How to Navigate It

Market volatility is in all the headlines, and for many savers and investors, it is unsettling.

For professional investors and household savers alike, sharp movements in stock markets make it hard to know what investments might do next

But while volatility can be uncomfortable, it is also a normal part of long-term investing.

What we’re seeing right now

In recent weeks, we have seen markets react sharply and quickly to events in the Middle East, rumours about the formalisation or collapse of the ceasefire and in the anticipation of a leadership contest in Westminster.

Figures about the economy and comments by central banks are also driving markets. Much of this is linked to concerns about the energy supply. Because energy markets are global, even the threat of disruption can quickly affect assumptions about future inflation, interest rates, economic growth and stock market performance.

Sometimes, it is easy to forget some markets have reached or remain near record highs in many parts of the world.

What’s driving the volatility

Several factors are at play:

• Global events: Ongoing tensions in the Middle East, in Ukraine and between major world powers continue to impact markets.
• Interest rate uncertainty: Central banks, like the Bank of England, are balancing the use of interest rates to control inflation with the effect of slowing economic growth.
• Inflation pressures: Inflation pressures, including fuel and energy prices, influence how much people buy, the costs of running a business, and the value of investments.
• Economic outlook: Mixed information around economic growth, employment, and consumer spending makes it harder for markets to settle into a clear direction.

Together, these forces create a situation where prices can move quickly as new information emerges. Some investors sit in the middle of it all, aiming to “sell high and buy low”. Some win, some lose, but that’s not how most people invest. With so much going on in the world, it feels like everything is moving at once, which can be unsettling for people wanting simple, steady returns.

When markets are like this, the way your money is invested becomes just as important as where it is invested.

Keeping a long-term perspective

One thing to always keep in mind is that a fall in the market does not necessarily mean you have lost money. You only lose money if you sell your shares for less than the price you paid for them.

Markets have always moved in cycles, and periods of uncertainty have often been quickly followed by periods of strong recovery and growth. The key is having an approach that helps you stay focused on what you are saving and investing for.

How the Police Friendly & Metfriendly approach helps

Our approach at Police Friendly and Metfriendly is designed to keep things stable over five years or more, helping to smooth out the ups and downs that come with most types of investment over this time.

The value of your money in our fund doesn’t directly follow daily stock market movements. Instead, the growth is spread out over time. When markets perform well, some of the gains are held back to help support performance in more difficult periods. This process, known as “smoothing”, reduces the impact of short-term market swings.