Why patience is an investment virtue

Written by: Michelle McGrade
Global equity markets fell heavily throughout August as investors worried about the negative impact of a potential Chinese slowdown and the continued weakness of the global financial system.

The FTSE 100 finished the month down by a painful 5.3%. However, we would encourage investors to hold their nerve in these volatile times.

The scale of stock market volatility took many investors by surprise and the sense of investors’ anxiety and fear can be seen on The Chicago Board Options Exchange’s VIX volatility index (pictured below) or more commonly referred to as the ‘fear gauge’.

Having closed on 19 August at a level of 15, the index aggressively spiked to 41 on 24th August, amidst sharp intra-day price moves across the major stock markets. The last time we saw such a spike was in relation to the downgrade of the US debt rating from AAA to AA+.

Overall, investors are fearful of the knock-on effects of a deep slowdown in the world’s second-largest economy – will slower Chinese demand harm growth in Europe, Asia and America? Investors are also concerned by the fragility of the global financial system. Investors were hoping that by now, seven years after the Lehman crisis, the world’s financial systems would be back to normal.

However, when we take these issues into account and with everything going on in the markets, it is not surprising to see bouts of volatility.

There may be more volatility to come and these may not be easy to watch especially if you are checking your investment portfolio. However, we urge you to show patience and if you have cash sitting on the sidelines, look at down-market days as opportunities to buy into your favoured stocks or funds at more attractive levels.


Source: Morningstar.

Michelle McGrade is chief investment officer at TD Direct Investing.

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