Partner Article

Volatile and directionless: Investors must brace themselves

By Richard Clark and Simon Patterson, Private Bankers at Barclays Wealth, Newcastle

With the current Euro debt crisis sparking news headlines daily and the continued instability in Greece, it is fair to say that investors have spent much of the last few weeks with their heads in their hands. However, despite the current market volatility, there is still room for global growth.

Global growth picked up in the third quarter of this year, mainly driven by a rebound in the US. We believe growth will stay firmly positive, although it may ease somewhat, in the last quarter as well. This is despite the weakening economic activity in the Euro area.

However, looking over the quarter as a whole, markets were volatile but also fairly directionless. Whilst it didn’t always feel like it, advice to sit tight and stand still is proving to be sound. The third quarter of this year was almost a textbook illustration of the warning from our Behavioural Finance Team against ‘overtrading’ in a crisis.

Many professional investors will have been wrong-footed by the timing and speed of the rally in developed stocks since early October. The dangers of losing composure and consequently selling risk assets at what turns out to have been a local low point, have been very evident!

Despite predicted growth in the final part of this year, investors should brace themselves for further volatility. As this uncertainty continues, it is important for investors to maintain their composure and not let fear breed fear in the marketplace.

Research Barclays Wealth conducted this year, looking at how investors across the globe approach financial decision making and investment strategies, found that 46% of investors in the North East of England considered themselves to have low composure. Additionally, half of North East investors wanted more discipline with their finances.

In times of market uncertainty, this discipline comes from following the tailored investment strategy that has already been set out and resisting the urge to overtrade – something one in five North East investors admitted to. Indeed, the research found that “emotional” trading can cost investors nearly 20% in returns over a ten-year period.

Looking forward, we must remember that the euro area crisis is not the only driver of market sentiment – expectations of US economic growth are more solid than they were.

However, it is clear that the roller coaster ride is not over yet.

As always, we do emphasise that investing in shares is not for everyone. Their value can fall and you can get back less than you invest – if you are unsure, you should seek independent advice.

Richard Clark and Simon Patterson joined Barclays Wealth Newcastle at the beginning of the year as Private Bankers and are focused on providing wealth management advice to new and existing clients, as well as establishing relationships with local businesses.

This was posted in Bdaily's Members' News section by Richard Clark .