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Investment guide

Stock market fluctuations and the causes

Stock market fluctuations

There’s a common stock market saying: ‘it isn’t about timing the market, it’s about time in the market’. And the basic principle of leaving your money where it is and letting it ride out the highs and lows is a good one.

It’s not about making overnight gains - though these can happen too – it’s about buying into the idea that investing is a for the long haul. It can be unnerving, as it has been recently, but investments do tend to recover and often continue to perform well.

What causes them

Supply and demand

Supply and demand

Put simply, if demand for a stock is high, more people want to buy it and the price increases, and if demand is low, the price drops.

Uncertainty

Uncertainty

Anything that affects the confidence of investors and causes them to sell their investments can make the market fall.

Confidence

Confidence

On the other hand, if investors are confident, they’ll invest more and sell less, which means less volatility, and this usually pushes prices up.

Covid-19

The impact of Coronavirus

As the virus developed into a global pandemic, this made investors uncertain. They reacted by selling and putting their investments into what were thought of as less risky stocks. This caused many of the stocks they sold to plunge in value.

The long-term benefits of a diversified portfolio

A diversified portfolio of investments means that your funds are spread across a range of assets. This guards against having ‘all your eggs in one basket’, which reduces your exposure if one fund or sector runs into trouble.

With Royal Bank Invest, fund managers carefully maintain a mix of assets to make sure there’s a sensible spread at the customer’s chosen risk level.  By sticking to a long-term goal and investing in a diversified portfolio, you could be better placed to ride out those short-term fluctuations.

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