Remember, just like a free lunch, in investment there is no such thing as “a sure thing”. Here we look at investment fundamentals in precarious markets.

A sure thing?

Market downturns are a fact of nature. They consistently happen and, as we are now experiencing, they attract howls of anguish from the average investor. Macro economics dictate that markets, by their very nature, will fluctuate between boom and bust. However, very valuable lessons have been learnt by living, and investing, through these troughs.

The present mix of a volatile but predominantly bearish global equity market, a thoroughly depressed debt market – particularly within the sovereign area - and political impasse conspire to present a gloomy investment landscape. Just what to do then in such troubled times?

By sticking to basic investment rules you can ride out the storm.

Diversify, diversify, and diversify

Ensure that your portfolio is as diverse as possible. Not only within any given asset class, but across many such investment vehicles such as Equities, Fixed Income, Commodities, Fine art, and Property (both residential and commercial). The more asset classes you are in the better. Ensure, however, that you understand and can track each class you are invested in.

Furthermore, look at creating a geographically diverse portfolio, covering the major economy markets, emerging markets and possibly exotics.

By adopting this philosophy, in times of downturn, your portfolio can then be adjusted to favour less risky assets, be they equities, currencies, or commodities.  Equally, on an upturn you can review your risk profile again and make the changes needed to capitalise on any market movement.

Remember, if all of your investments are moving in any one direction, be that up or down, then you are either extremely lucky, unlucky or not fully diversified.

Given the above, also consider your currency exposure. Are you overweight in any given currency or currency bloc? In which currency is your major expenditure conducted? Do you need dividend/interest income in that currency? Invest accordingly.

Keep liquidity

Knowing that you have expenditure commitments you should also attempt to maintain a degree of liquidity (cash) in your portfolio, to allow you to take advantage of opportunities that crop up unexpectedly. Obviously, cash itself is regarded as an asset class.Patience is a virtue

Patience is a virtue

It is almost impossible to always call the top and/or bottom of any investment cycle, so be prepared for the market lag that inevitably occurs, be that on the way up or the way down. It is here that you may have to make the timely decision to buy or sell. Market inertia is fine, but there are times when you have to cut your losses or take your profits. Either way you can re-enter the markets with either most of your stake intact or your profit crystallised to be able to fight another day and rejoin the fray.

The markets have their own momentum

Remember, you personally cannot affect the markets – unless you are a George Sorros or a Sovereign Wealth Fund. Multiple influences are at work: financial, legal, political, economic (both fiscal and monetary), demographic, and of course, natural disasters, effecting national, regional or global supply and demand.

In your portfolio selection consider which companies, countries, commodities, currencies, or political groupings can best mitigate any of these influencers and thus avoid unnecessary risk.

Watch the long-term trend

Finally, given all of the above parameters, every market has an underlying trend.  These can be measured and plotted across various timelines, be they monthly, quarterly, annually, 5-year, 10-year, or longer-term from whatever base line it is measured.

Statistically, every market has to return to its long-term trend, it is just a question of time. It is here that your patience can be sorely tested, but the long-term trend can be your friend and help you sleep at night when any of the markets you are invested in take an unexpected lurch.

It is important to take professional advice before making any decision relating to your personal finances.

NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. THE VALUE OF INVESTMENTS IS NOT GUARANTEED AND WILL FLUCTUATE. YOU MAY GET BACK LESS THAN YOU INVEST. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND.