How should you react to stockmarket volatility?

The Footsie climbed above 7,000 for the first time in its history this year before crashing back down to below 6,000. What should investors do?

What should private investors do? That largely depends on what sort of investor you are, Tom Stevenson, investment director at Fidelity worldwide investment, told The Independent in a video interview.

“The stockmarket 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 stockmarket 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. But he makes a bid distinction between volatility and risk.

“All volatility says is that markets go up and down. Risk is something different,” he says. 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.”

He says that timescale is important. Studies show that over long periods, 18 years or more, there hasn’t been a period when the stockmarket 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 beating the market is a big challenge. If seasoned professionals are unsure about which way markets are going , where does that leave private investors who generally don’t have the experience or access to information that experts have?

Watch the video to hear Tom Stevenson's advice.