It’s natural for anyone to feel anxious about investments going down in value. Investors generally prefer stable markets, but it is best to be prepared to acknowledge and plan for investment volatility. A resilient and well-diversified portfolio can help to manage volatility over longer investment time horizons and can support long-term financial goals. There are three important factors to provide your employees with reassurance:

1. Volatility is not uncommon in history
2. Diversification can help to protect from the extreme impact of volatility
3. Investments should be suitable for the time that you can remain invested

So, what is market volatility, and how can you help your employees to manage uncertainty?

Market volatility explained

Market volatility means uncertainty surrounding value, usually due to market prices fluctuating sharply. More volatile assets, such as global equities, are generally considered to be riskier, as their price movements are less predictable.

Human nature tends to view volatility when investment values decline, but it also refers to steep increases. Such changes in value might also be rapid and unexpected. However, most of the factors which influence prices are out of our control: monetary policy shifts, global geopolitical events, or market conditions can all move the dial and for individual shares, company performance and market conditions can also create volatility.

However, shifts in valuations are integral to investing. Investors should remember that most of the investment’s value is generated over the long-term. Take the FTSE 100 since January 1986, the UK’s benchmark share index, and you can see the general upward trend but along the way we have seen some global downturns due to the dotcom crash, the financial crisis and the pandemic and most recently the US tariffs announcements. 

If you had put in £100 every month you would have seen notable growth.

Five-year performance table

Volatility is not always bad as market corrections can offer opportunities for those with a long-term view, to invest at a discount. Alternatively, when valuations rise quickly, investors could reinvest profits into better opportunities elsewhere.

Often, it pays to stay invested. A balanced and well-managed portfolio is usually able to withstand short-term volatility and benefit from growth over time.

Managing market volatility

Whilst we cannot remove volatility, we should consider applying tried-and-tested methods to manage it effectively. Some investments are of course riskier than others, and various markets can be subject to instability at any time.

Investment returns are often accompanied with risk. Therefore, it’s important to spread investment risk, instead of concentration in one area: this is called diversification.

The chart demonstrates how differently various investments can behave, year-on-year: highlighting the importance of diversification in an investor’s portfolio and also showing how difficult it is to select the right area for the best returns.

Investing in a blend of assets like equities, real estate, and corporate bonds, along with government bonds and cash, can reduce the impact of market swings. Diversification might also generate more consistent returns over time.

Spreading your investments is a key rule for successful investing. No matter what your long-term financial goals are.

What next

Fidelity is an experienced asset manager, providing fund choices that provide a diversified and actively managed investment solution to help your pension scheme and your employees to manage volatility and to try and best deliver the best member outcomes.

For long-term investments like pensions, derisking helps manage volatility. Derisking means gradually shifting away from riskier assets, and managing risk as retirement draws nearer.

FutureWise is Fidelity's default investment strategy for workplace pension plans, featuring diverse investments and a flexible derisking strategy that adapts to market changes. It includes an in-built glidepath to manage risk, as members approach their retirement date.

Through responsible, active management, Fidelity uses our expertise to help your employees towards achieving their investment needs and to support the best possible member outcomes for their retirement from their workplace pension scheme.

We provide further information for members to support them in times of market volatility.