You’re riding high in March, shot down in August... Is that life for a share investor?

The volatility on the stock market this year has persuaded some to get out. But in the long run it’s the place to be

China's stockmarket woes caused global problems

Fluctuating share prices are a normal part of stock market life, but there has been more volatility than usual this year. In March the Footsie climbed above 7,000 for the first time in its history, before crashing back down to below 6,000 in August. It now seems to be back on an upward path and is hovering around the 6,300 mark. But investors could be forgiven for heading for the hills in confusion.
At the heart of the volatility is uncertainty about the direction of the global economy, and the  key concern remains China. David Cameron may have launched a charm offensive with Chinese leaders recently, but the economy in the People’s Republic is slowing down. And that is having a marked effect on other emerging market economies.
China’s stock markets bottomed out on 24 August, triggering a frenzied sell-off across both developed and developing equity markets. On the back of that there has been a rout in the commodities sector.
There is also continuing concern over when the US will raise interest rates. “This week’s decision by the Federal Reserve to leave rates alone again showed the lack of clarity among decision makers around the timing of potential rises,” said Colin Morton of the Franklin UK Managers’ Focus fund. “It highlighted the fact that no one really has any idea when and to what extent any changes will come.”
Put all this together and investors have had a bumpy a ride in the past 10 months. And since August – when the big sell-off triggered by the Chinese slump hit global markets – many have decided  to get out.
According to a recent report, seven of the world’s largest fund managers, collectively, shed more than $700bn (£450bn) in the third quarter. There are fears investors will pull more money out before the end of the year.
What should you do? Tom Stevenson at Fidelity Worldwide Investment told The Independent in a video interview that this largely depends on what type of investor you are.
“The stock market has been volatile over the last year. Your attitude to volatility is a key question you need to ask yourself when you’re considering whether to be a stock market investor at all,” he says.
Mr Stevenson believes that  volatility is the price that you pay for the long-term outperformance that markets can offer. However, he makes a big distinction between volatility and risk.
“All volatility says is that markets go up and down. Risk is something different,” he explains. “The only risk that really matters is the risk that you could permanently lose your capital. If your capital rises over the long term but bounces up and down along the way then that’s not a risk.”
Timescale is important, he adds. Studies show that over long periods, 18 years or more,  there hasn’t been a time  when the stock market hasn’t been the best place to invest – producing better returns than bonds and cash.
“Investment is all about probabilities and backing the odds in your favour. Over a long period, the odds are stacked in favour of equity investment. In other words, as long as you’re prepared to ride out short-term fluctuations, you should be rewarded over the long term.”
Even then, it may not be realistic to think about beating the markets. If seasoned professionals are unsure which way markets are going , where does that leave private investors who generally don’t have the experience or access to information enjoyed by the experts?
To hear more of  Tom Stevenson’s advice, watch the interview at ind.pn/1jWsvgP.