Investment Chief: Consistency Key to Navigating Market Volatility

Lars Söderfjell, Head of Equities at Ålandsbanken Fonder, advises investors to maintain consistency and adhere to pre-set strategies to successfully navigate market instability. During periods of stock market downturns, inflation, and rising interest rates, savers often feel a strong urge to react quickly. However, Söderfjell emphasizes that historical data indicates successful investors are those who remain steadfast in their approach, even amidst turbulent markets. Söderfjell explains that market swings amplify emotions, leading to euphoria and fear, which often drive costly investment mistakes. He notes that investors frequently increase stock holdings during market peaks and then panic-sell during downturns. While acting according to one's risk tolerance is appropriate, Söderfjell stresses that these strategic decisions should be made proactively, well before market fluctuations occur, rather than reactively. The core principle for successful investing, according to Söderfjell, is consistency rather than passivity. He recommends determining in advance the proportion of a portfolio that can be allocated to more volatile assets, such as equities, based on an investor's comfort level and ability to sleep at night. Even after establishing this risk level, a common pitfall is attempting to adjust portfolios in response to sharp market movements. Söderfjell warns that market timing is exceptionally difficult, even for professionals, and a long-term plan consistently followed is almost always more advantageous, supported by historical market recoveries following significant falls.