Investment Volatility Explained: What UK Expats Need to Know

For UK expats, investing can be an important part of building long-term financial security. Living and working overseas can create opportunities to earn, save and invest across different markets, but it can also introduce additional layers of complexity.

One of the most important concepts to understand is investment volatility.

Key Takeaways

• Investment volatility is a normal part of investing. Market values will rise and fall, and short-term fluctuations do not necessarily indicate a poor investment strategy.

• Volatility and risk are not the same. Volatility measures price movements, while investment risk also includes factors such as potential losses, inflation, liquidity and concentration.

• Your timeframe matters. Money needed in the near future may require a more cautious approach, while long-term investments may have more time to withstand market fluctuations.

• Diversification can help manage volatility. Spreading investments across suitable asset classes, geographical markets and currencies can reduce reliance on any single area.

• Your investment strategy should evolve with your circumstances. Changes in your location, retirement plans, income, pensions or financial goals may mean your portfolio needs to be reviewed.

• Professional advice can provide clarity. A tailored financial plan can help UK expats manage investments, pensions, savings and other assets in line with their long-term goals.

What is Investment Volatility?

Investment volatility describes how significantly and how frequently the value of an investment or portfolio changes over a particular period.

If an investment moves relatively little in value, it may be described as having lower volatility. If its price regularly experiences larger movements, it is generally considered more volatile.

For example, imagine that you invest £50,000 in a portfolio.

If the value moves between £49,000 and £51,000 over a period, the fluctuations may feel relatively modest.

If the same £50,000 portfolio moves to £43,000 and then later to £56,000, the investment is experiencing considerably greater volatility.

Importantly, volatility is not the same thing as permanent loss.

A temporary fall in the value of an investment does not necessarily mean that the underlying investment has permanently lost its potential. However, if you sell an investment after a significant fall, you turn that movement into a realised loss.

This distinction becomes particularly important when markets experience periods of uncertainty.

The Financial Conduct Authority (FCA) makes the broader point that investment returns can be unpredictable over shorter periods and that investors should consider their timeframe, capacity for loss and overall risk when making investment decisions.

Why Do Investments Become Volatile?

Now that we understand what investment volatility means, the next question is why it happens in the first place. The simple answer is that financial markets are constantly responding to new information. As investors change their expectations about the economy, interest rates, company profits and world events, the value of investments can move up or down.

For example, if investors expect interest rates to remain high, they may reassess the value of certain shares, bonds or property investments. Similarly, concerns about inflation, an economic slowdown or geopolitical events can make investors more cautious, which can lead to larger movements in markets. On the other hand, positive economic news or stronger-than-expected company results can encourage investors to buy, pushing prices higher.

Importantly, markets react not only to what is happening, but also to what investors think might happen next. This is why investment prices can sometimes move significantly even when there has been no obvious change in the underlying investment.

Currency movements can add another layer of volatility for UK expats. If you live overseas, you may earn your income in one currency, hold investments in another and eventually want to spend your money in pounds. As a result, changes in exchange rates can affect the sterling value of your wealth, even when the underlying investment itself has performed reasonably well.

Therefore, volatility is a natural consequence of investing in markets where prices are continually changing. However, this does not automatically mean that volatility is something investors should fear. In fact, understanding why markets fluctuate is an important first step towards putting those movements into perspective.

Is Investment Volatility Always a Bad Thing?

It is understandable to feel concerned when the value of an investment falls. After all, nobody enjoys seeing £100,000 become £90,000 on a statement. However, a fall in value does not necessarily mean that the investment has become permanently less valuable or that the original investment strategy was wrong.

In many cases, market falls are temporary. Prices can decline because investors have become nervous about the economy or because expectations have changed, and they can subsequently recover as conditions improve. Of course, there are no guarantees that an individual investment will recover, which is why choosing suitable investments and managing risk remain important.

This is where it helps to think about your investment timeframe. If you are investing money that you will need within the next year or two, a substantial fall could create a serious problem because you may not have enough time to wait for the market to recover. However, if you are investing for retirement several decades away, short-term movements may have less importance, provided your portfolio remains suitable for your circumstances.

For this reason, I believe the more useful question is not simply, “How can I avoid investment volatility?” Instead, it is, “How much volatility am I comfortable with, and how much can I reasonably afford to accept?”

Once you look at volatility in this way, it becomes easier to see that volatility and investment risk are related, but they are not exactly the same thing.

Investment Volatility and Investment Risk Are Not Exactly the Same

The terms “volatility” and “risk” are often used as though they mean the same thing, but there is an important difference. Volatility describes how much the value of an investment moves over time, whereas risk is a much broader concept that considers the possibility of losing money, failing to achieve your objectives or being unable to access your money when you need it.

For example, a share price might move up and down considerably over a short period, making it highly volatile. However, if you are investing for the long term and have the financial capacity to withstand those movements, that volatility may be manageable.

By contrast, an investment may appear relatively stable but still carry other forms of risk. Property is a useful example. Its value may not be updated every minute like a listed share, so the price movements may appear less obvious. Nevertheless, property can still fall in value, and it can also be difficult or expensive to sell quickly. There may also be borrowing, maintenance, taxation and concentration risks to consider.

This distinction is particularly important when building a financial plan. Simply choosing investments that have experienced less volatility in the past does not necessarily mean that you have created a low-risk portfolio.

Instead, you need to consider the complete picture, including your investment timeframe, financial commitments, liquidity needs, diversification, income, tax position and ability to cope with losses.

For UK expats, there is another factor to consider: your financial life may already span several countries and currencies. As a result, the risks affecting your wealth can be more complicated than the movements you see in your investment account.

That is why investment volatility deserves particular attention when you are living and working abroad.

Why Investment Volatility Matters Particularly to UK Expats

For someone living permanently in the UK, much of their financial life may be centred around one country and one currency. For an expat, things can be very different. You may earn your salary overseas, maintain savings or pensions in the UK, own property in another country and hold investments across several international markets.

This can create additional layers of volatility and risk.

Currency is one of the clearest examples. Suppose you live abroad and your income is paid in euros, dollars or another currency, while some of your savings and investments are held in pounds. Changes in exchange rates can alter the sterling value of your wealth even if the underlying investments themselves have not changed significantly.

The opposite can also be true. If your investments are held in foreign currencies but you eventually plan to return to the UK, exchange-rate movements could affect how much those investments are worth when converted into pounds.

Therefore, an expat needs to think beyond investment performance alone. The important question is not just whether your portfolio is growing, but whether it is growing in a way that supports the currency, country and lifestyle you expect to have in the future.

Your location can also affect your pensions, taxation and financial obligations. You may have a UK pension from your time working in Britain while also building pension benefits or other investments overseas. At the same time, you may be considering buying property, paying international school fees, supporting family members or eventually returning to the UK.

All of these factors can influence how much investment volatility you can reasonably accept.

For example, someone who plans to use £100,000 to purchase a UK property in two years may need to approach investment risk very differently from someone who is investing £100,000 for retirement in 25 years. The first investor has a relatively short timeframe and a specific need for the capital, while the second has considerably more time to withstand market fluctuations.

This is why there is no single investment strategy that is suitable for every UK expat.

Instead, investment volatility needs to be considered alongside your personal circumstances, financial objectives, timeframe, currencies and wider wealth position. Once these factors are understood, it becomes much easier to determine how your portfolio should be structured and how much market movement you can realistically tolerate.

From there, the next step is to consider how different types of investments respond to volatility and how diversification can help manage the overall risk within a portfolio.

What Causes Investment Volatility For Expats?

For UK expats, investment volatility can come from many of the same sources that affect investors in the UK. However, living and working internationally can add another layer of complexity because your wealth may be spread across different countries, currencies and financial systems. Understanding these influences can make market movements easier to put into perspective and can help you make more considered decisions when markets become unsettled.

1. Global Market Movements

Financial markets are connected, so events in one part of the world can affect investments elsewhere. For example, a change in interest-rate expectations in the United States can influence global share markets, while economic developments in Europe or Asia can affect companies and funds held by UK investors.

This matters to expats because a globally diversified portfolio may contain investments from many different regions. Although diversification can reduce your dependence on any single market, it also means that events outside your country of residence can affect your portfolio.

For example, imagine you have a £100,000 globally diversified portfolio. If 60% is invested in equities, that gives you £60,000 of exposure to shares. If global equity markets then fall by 10%, and assuming everything else remains unchanged, that portion could fall from £60,000 to approximately £54,000.

This simplified example illustrates why diversification matters. The entire portfolio has not fallen by 10% because only part of it was exposed to the movement in global equities.

Of course, real portfolios are more complicated. Different investments can move in different directions, and correlations between markets can change during periods of stress. Nevertheless, spreading your investments across suitable asset classes and geographical regions can reduce the impact of relying too heavily on one particular market.

For expats, this global perspective is especially important because your financial interests may already be international. Rather than focusing solely on what is happening in the country where you currently live, it can be useful to understand how global developments could affect the portfolio as a whole.

2. Currency Movements

Currency movements are particularly relevant to UK expats because your financial life may involve more than one currency. You might earn US dollars, hold a UK pension in pounds, invest in euros and eventually plan to spend your retirement income in sterling. As a result, your investment performance can look very different depending on which currency you use to measure it.

Consider a simple example. Suppose you hold an overseas investment worth €100,000 and the exchange rate is €1.15 to £1.

The sterling value would be approximately:

€100,000 ÷ 1.15 = £86,957

Now imagine that the investment itself does not change in euro terms, but the pound strengthens and the exchange rate moves to €1.25 to £1.

Your investment would then be worth:

€100,000 ÷ 1.25 = £80,000

Your investment has not fallen in euro terms, yet its sterling value has decreased by approximately £6,957.

The reverse can also happen. If the pound weakens against the euro, the sterling value of the same €100,000 investment could increase.

This demonstrates why currency movements can either help or hurt an expat investor.

However, currency exposure is not automatically something that should be eliminated. If you live in the eurozone and expect to spend your money in euros, holding assets denominated in euros may make sense because your future spending is also in that currency.

The key is to understand where your future financial commitments will arise.

If you expect to return to the UK and spend most of your retirement income in pounds, sterling may become increasingly important to your financial planning. Conversely, if you expect to remain overseas permanently, your future currency requirements could be very different.

Therefore, when reviewing investment volatility, consider both the performance of your investments and the currencies in which you expect to earn, hold and spend your wealth.

3. Interest Rates

Interest rates can influence many parts of an investment portfolio, which is why changes in monetary policy can sometimes lead to significant market movements.

When central banks raise interest rates, borrowing generally becomes more expensive. This can affect consumers, businesses and property markets because higher borrowing costs can reduce spending and investment. At the same time, higher interest rates can make cash savings and certain fixed-income investments more attractive.

Bonds can be particularly sensitive to changes in interest rates. In general terms, when market interest rates rise, the prices of existing fixed-rate bonds can fall because newer bonds may offer more attractive yields. Conversely, when interest rates fall, existing bonds with comparatively attractive fixed rates can become more valuable.

The relationship is not always straightforward, however, because bond prices can also be affected by inflation expectations, credit quality, maturity and broader economic conditions.

Interest rates can also affect equities. If borrowing becomes more expensive, companies may face higher financing costs, while consumers may have less disposable income. Investors may consequently reassess expectations for future company profits, which can contribute to share-price volatility.

For expats, the situation can become even more complicated when you have financial commitments in different countries.

For example, you could have:

• A UK mortgage

• A property overseas

• Savings in your country of residence

• A pension invested globally

• Income paid in a foreign currency

A change in interest rates could therefore affect different parts of your financial position at the same time.

This is another reason why it can be useful to assess your investment portfolio as part of your wider financial plan rather than considering each investment separately.

4. Inflation

Inflation is another important source of investment risk, although it can be easy to overlook because its effects are not always immediately visible.

When prices rise over time, the purchasing power of money decreases. In other words, £10,000 today will not necessarily buy the same amount of goods and services in ten or 20 years.

For example, if inflation averaged 3% a year, £10,000 would need to grow to approximately £13,439 after ten years simply to maintain the same purchasing power.

That is because:

£10,000 × (1.03)¹⁰ ≈ £13,439

This does not mean that your investments need to achieve exactly 3% every year. Investment returns fluctuate, and inflation itself changes over time. Instead, the example illustrates why long-term financial planning needs to consider purchasing power rather than simply the amount shown on an account statement.

For an expat, inflation can also differ between countries.

Suppose you live overseas and your everyday expenses are rising faster than prices in the UK. Your financial needs may increase even if your sterling-based assets remain unchanged.

Alternatively, if you plan to return to the UK, you may need to consider the future cost of UK housing, healthcare, education and other expenses.

This is why simply holding large amounts of cash may not always provide the long-term protection investors expect. Cash tends to have relatively low short-term price volatility, but its purchasing power can decline when inflation exceeds the interest earned.

Consequently, a long-term investment strategy needs to consider not only the possibility of markets falling but also the possibility that your money may lose purchasing power over time.

5. Political And Economic Events

Markets can react quickly when significant political or economic events occur.

Elections, changes in government policy, geopolitical tensions, trade disputes, financial crises and unexpected economic data can all influence investor confidence. Sometimes the impact is temporary; at other times, it can lead to longer-term changes in particular industries, countries or markets.

For example, suppose investors become concerned that a major economy is entering a recession. They may reduce their exposure to shares because they expect company profits to weaken. If enough investors respond in the same way, share prices can fall.

The important point is that markets often react to expectations rather than waiting for events to become certain.

This can produce substantial short-term movements. However, it is difficult to know in advance how long those movements will last or which investments will ultimately benefit.

For UK expats, political and economic developments can have an additional dimension because you may be exposed to more than one country's economic environment.

You could be affected by:

• Economic conditions in your country of residence

• UK economic and political developments

• Conditions in the countries where you invest

• Changes to international tax rules

• Currency movements

• Changes to pension regulations

• International trade policies

Consequently, reacting to every political headline can be counterproductive. A long-term investment portfolio should be designed with the understanding that unexpected events will occur.

Instead of attempting to predict every development, it can be more productive to build a diversified strategy that does not depend on one particular economic outcome.

Ultimately, volatility is part of investing because markets are constantly responding to changing information. For expats, however, the effects can extend beyond investment prices because currencies, taxation, pensions, property and future spending can all form part of the same financial picture.

That is why understanding the source of volatility is only the first step. The next step is considering how your portfolio is positioned to cope with these different influences while still working towards your long-term objectives.

How Different Investments Respond To Volatility

Not all investments respond to market volatility in the same way. Some can experience significant price movements over short periods, while others tend to move more gradually. However, lower visible volatility does not automatically mean lower overall risk.

For UK expats, understanding these differences is particularly important because your portfolio may contain a mixture of investments across different countries, markets and currencies.

Equities

Equities, or shares, generally have greater short-term volatility than assets such as cash. When you buy shares, you are buying an ownership interest in a company, so the value of your investment can change as investors reassess the company's future prospects.

Share prices can react to company results, changes in expected profits, interest rates, economic growth, political developments and investor sentiment. Consequently, even a financially strong company can experience substantial short-term price movements.

For example, imagine you have £50,000 invested in a diversified equity portfolio. If the market falls by 15%, the value could temporarily decline to approximately:

£50,000 × 0.85 = £42,500

That represents a paper loss of £7,500.

However, if the market subsequently rises by 20% from £42,500, the value would become:

£42,500 × 1.20 = £51,000

This simple example highlights an important point: investment losses and gains are calculated from the current value, rather than always returning to the original percentage.

It also demonstrates why selling immediately after a market fall can have significant consequences. If you sell at £42,500, you have crystallised the £7,500 decline. If you remain invested and the portfolio subsequently recovers, the outcome can be different.

Of course, this does not mean that every share or equity fund will recover after a fall. Individual companies can perform poorly or fail altogether. This is one reason diversification across companies, sectors and geographical regions can be so important.

For expats with long-term objectives such as retirement planning, equities may have an important role because they provide the potential for capital growth. However, the level of equity exposure should reflect your timeframe, objectives, attitude to risk and capacity for loss.

Bonds

Bonds can behave differently from equities, although they are not free from volatility.

When you invest in a bond, you are generally lending money to a government, company or other issuer in return for interest payments and the repayment of the principal according to the terms of the bond.

One of the most important factors affecting bond prices is interest rates.

In broad terms, when market interest rates rise, existing fixed-rate bonds can become less attractive because newly issued bonds may offer higher rates. As a result, the market value of existing bonds can fall.

Conversely, when market interest rates fall, existing bonds paying relatively attractive rates can become more valuable.

However, the relationship between bonds and interest rates depends on factors such as the bond's maturity and its sensitivity to changes in yields. Longer-dated bonds can generally experience larger price movements when interest rates change.

Bonds also carry credit risk. If the financial position of the issuer deteriorates, investors may become concerned about whether they will receive the expected interest or principal payments.

For an expat, currency is another consideration. A bond denominated in US dollars, euros or another currency may behave differently when its value is converted into pounds.

Therefore, while bonds can play an important role in a diversified portfolio, it is important not to assume that they will always rise when equities fall or that they cannot lose value.

Property

Property can appear less volatile than shares because property values are not normally updated continuously throughout the day. You might check the value of a listed investment and see it change from one day to the next, whereas a residential or commercial property may only receive a new valuation periodically.

This can make property appear more stable than it actually is.

Property markets can experience significant changes in value, particularly when interest rates, employment, economic growth or local demand change. In addition, property comes with risks that are different from those associated with listed investments.

These can include:

• Liquidity risk

• Mortgage and financing costs

• Maintenance expenses

• Insurance costs

• Vacancy risk

• Local property-market conditions

• Taxation

• Transaction costs

• Concentration risk

Liquidity is particularly important. If you own a property worth £500,000, that does not necessarily mean you can immediately access £500,000 if you need it. Selling a property can take time and involve estate-agent fees, legal costs, taxes and other expenses.

This can be especially relevant for expats who already have substantial wealth tied up in property.

For example, suppose an expat owns a £600,000 home in the UK and has another £400,000 invested in financial assets. On paper, they have £1 million of assets. However, £600,000 of that wealth is concentrated in one property.

If the investor's objective is long-term diversification, it would therefore be important to consider the property alongside the rest of the portfolio rather than viewing the £400,000 investment portfolio in isolation.

Property can be a valuable part of a financial plan, but its apparent lack of day-to-day price movements should not be confused with an absence of risk.

Cash

Cash generally experiences much less visible investment volatility than shares, bonds or property. If you hold £20,000 in a bank account, the balance is unlikely to fluctuate in the same way as a share portfolio.

This stability can make cash extremely useful for short-term financial needs and emergency reserves. It can also provide reassurance during periods of market uncertainty.

However, cash has another type of risk: inflation.

If your savings earn 2% interest while inflation is running at 4%, your money may increase in pounds but lose purchasing power in real terms.

For example, suppose you have £50,000 in cash and receive 2% interest for one year.

Ignoring tax and assuming the rate remains unchanged, the balance would become:

£50,000 × 1.02 = £51,000

However, if inflation over the same period is 4%, the purchasing power of that £51,000 would have fallen in real terms.

This is why cash should not automatically be viewed as the safest choice for every financial objective. It can be highly appropriate for money you expect to need soon, but keeping too much long-term wealth in cash may expose you to inflation and the opportunity cost of missing potential investment growth.

For an expat, cash management can also involve currency considerations. Holding large amounts of money in a currency that you do not ultimately intend to spend can expose you to exchange-rate movements.

Other Investments

Some portfolios may include other types of investments, such as commodities, infrastructure, alternatives or specialist funds. These investments can behave differently from traditional shares and bonds, which may provide additional diversification.

However, they can also introduce their own risks and complexities.

For example, commodities can be influenced by global supply and demand, geopolitical developments and currency movements. Specialist or alternative investments may have more complicated structures, limited liquidity or higher fees.

This means that adding an investment simply because it behaves differently from the rest of your portfolio does not automatically make the portfolio better diversified.

Before considering any investment, it is important to understand what drives its returns, how easily you can sell it, what charges apply and what could cause its value to fall.

Comparing Different Investments

The following table provides a simplified overview of how different asset classes can respond to volatility:

This table is deliberately simplified because the characteristics of an individual investment can differ significantly from the broader asset class.

For example, a government bond with a short maturity can behave very differently from a long-dated corporate bond. Similarly, a diversified global equity fund can have a very different risk profile from investing in a handful of individual shares.

The key lesson is that there is no single investment that completely eliminates volatility.

Instead, different investments can perform differently under different economic conditions. This is one of the reasons diversification is such an important part of investment planning.

Bringing Different Investments Together

Rather than asking which single investment will perform best, it can be more useful to consider how different investments work together.

Imagine an expat has £200,000 to invest. Instead of placing the entire amount into one asset class, the portfolio could potentially contain a mixture of equities, bonds, cash and other suitable assets.

The precise allocation would depend entirely on the investor's circumstances, but the principle is straightforward: different investments can respond differently to the same economic event.

For example, during a period of strong economic growth, equities may perform well while certain defensive assets behave differently. During a period of economic uncertainty, some investors may value the stability provided by cash or certain bonds. Meanwhile, property may respond according to local economic and financing conditions.

There is no guarantee that diversification will prevent losses. However, spreading investments can reduce the impact of any single investment or market having a poor period.

For UK expats, this becomes even more important because diversification can involve not only different asset classes but also different countries, regions and currencies.

Ultimately, the purpose of diversification is not to eliminate investment volatility. Rather, it is to build a portfolio where the risks are understood, deliberately managed and appropriate for the investor's circumstances.

That leads to the next important question: how can UK expats use diversification to manage investment volatility without taking either too much or too little risk?

The Importance Of Diversification

As we have seen, different investments can respond very differently when markets become volatile. This is where diversification becomes particularly important. Rather than relying heavily on one investment, market or currency, diversification involves spreading your wealth across a range of suitable investments so that a poor performance in one area does not necessarily have the same impact on your overall portfolio.

Diversification cannot remove investment risk or guarantee positive returns. However, it can help reduce your reliance on any one investment and make your portfolio better positioned to deal with different market conditions.

For UK expats, diversification can be considered across three main areas: assets, geographical markets and currencies.

Asset Diversification

Asset diversification means spreading your investments across different types of assets, such as equities, bonds, property and cash.

The reason is straightforward: different assets can respond differently to the same economic conditions. For example, shares may experience significant volatility during an economic downturn, while cash may remain relatively stable. Similarly, bonds can respond differently to changes in interest rates than equities.

A diversified portfolio might therefore combine several asset classes rather than placing all of its capital into one area.

For example, an investor with £100,000 could potentially have exposure to a combination of equities, bonds and cash rather than investing the entire £100,000 in shares. The appropriate balance will depend on the investor's objectives, timeframe and ability to withstand losses.

The aim is not simply to own more investments. Instead, it is to ensure that your investments serve different purposes and that you are not unnecessarily dependent on one particular type of asset.

Geographic Diversification

For expats, geographic diversification can be just as important as asset diversification.

Investing across different countries and regions can reduce your dependence on the economic performance of a single market. For example, a portfolio invested across the UK, North America, Europe and Asia may be less exposed to problems affecting one particular economy than a portfolio concentrated entirely in one country.

This can be especially relevant if much of your existing wealth is already linked to one country. You may own a UK property, receive a UK pension and have other sterling-based assets, for example. Adding investments from other regions could potentially provide greater geographical balance.

However, geographic diversification does not mean investing everywhere simply for the sake of it. Each market carries its own economic, political, regulatory and currency risks, so investments should be selected based on their suitability rather than location alone.

Currency Diversification

Currency diversification is particularly relevant when you live and work overseas.

If you earn, save and invest in different currencies, exchange-rate movements can affect the value of your wealth when measured in pounds. Holding investments across different currencies can sometimes provide a degree of diversification, but it can also introduce additional currency risk.

For example, an investment may perform well in US dollars but produce a different return when converted into sterling because the exchange rate has moved during the same period.

Therefore, your currency exposure should reflect your wider financial plans. If you expect to return to the UK and spend much of your future wealth in pounds, sterling exposure may become increasingly relevant. Conversely, if you intend to remain overseas, the currencies of your future income and expenditure may be more important.

Ultimately, diversification should be about balance rather than complexity. A well-diversified portfolio does not need to contain hundreds of investments. It needs to contain an appropriate mix of assets, markets and currencies that work together to support your objectives while keeping investment volatility and other risks at a level you can reasonably accept.

For UK expats, this broader approach can be particularly valuable because your investment portfolio is only one part of a much larger financial picture.

Investment Volatility and Your Investment Timeframe

Once you understand how different investments can behave during periods of volatility, the next consideration is how long you expect to remain invested. Your investment timeframe can make a significant difference to how you should view short-term market movements.

If you need your money within the next year or two, a substantial fall in investment values could be difficult to manage because you may not have enough time to wait for markets to recover. However, if you are investing for a goal that is 15, 20 or 30 years away, short-term volatility may be less significant because you have more time for your investments to potentially recover and grow.

For example, imagine you invest £100,000 for retirement and the portfolio falls by 20% during a period of market uncertainty.

The value would temporarily fall to:

£100,000 × 80% = £80,000

A 25% increase from £80,000 would then bring the portfolio back to £100,000.

This illustrates an important point: a 20% fall requires a 25% gain to return to the original value. However, the longer your investment timeframe, the more opportunity you may have to experience periods of growth as well as periods of decline.

This does not mean that long-term investments cannot lose money. They can, and there are no guarantees that a particular investment will recover. Instead, the point is that your timeframe can influence how much importance you should place on short-term movements.

For UK expats, timeframe is particularly important because your future plans may change. You might currently be working overseas but expect to return to the UK in five years, or you might intend to remain abroad and retire there in 20 years.

Therefore, it is useful to identify when you expect to need the money before deciding how much investment volatility you can reasonably accept.

Once you have a clear timeframe, it becomes easier to understand why reacting to every market fall may not always be the best approach.

Why Selling During A Market Fall Can Be Problematic

When markets fall, it is natural to feel concerned. Seeing a portfolio decline in value can create a strong temptation to sell investments and move the money into cash.

However, selling after a significant fall can turn a temporary decline into a permanent loss.

Consider a simplified example:

The investor who sold at £80,000 would not benefit from the subsequent recovery unless they decided to reinvest.

This is one of the difficulties with trying to time the market. It is relatively easy to say that you should buy when prices are low, but knowing exactly when markets have reached their lowest point is extremely difficult.

The same applies to deciding when to reinvest. If you wait for the market to feel safer, prices may already have recovered significantly.

For example, suppose a £100,000 portfolio falls to £80,000. If the investor waits until the portfolio has recovered to £92,000 before reinvesting, they have missed part of the recovery.

This does not mean investors should blindly hold every investment regardless of what happens. Sometimes an investment genuinely becomes unsuitable, or your financial circumstances change. The important distinction is between making a considered change because your financial plan has changed and making a rushed decision because markets have fallen.

For expats, this distinction can be particularly important. A market fall might happen at the same time as currency movements, political uncertainty or changes to your plans to return to the UK. Looking at the entire financial picture can therefore be more useful than reacting to one headline or one day's market movement.

This also helps explain why having a clear investment strategy before volatility occurs can be so valuable.

Regular Investing And Market Volatility

If you are building your investments gradually, regular investing can provide another way of dealing with market fluctuations.

Rather than investing one large amount at a single point in time, you invest a set amount at regular intervals. For example, you might invest £1,000 each month.

When investment prices are higher, your £1,000 buys fewer units. When prices are lower, the same £1,000 buys more units.

A simplified example illustrates the principle:

In this example, the investor buys more units when prices are lower and fewer when prices are higher.

This approach can reduce the pressure of trying to decide whether today is the “right” day to invest. It also creates a disciplined process that can be useful during uncertain markets.

However, regular investing is not automatically better than investing a lump sum.

If you already have £50,000 available to invest, for example, spreading that money over several years means some of the capital remains in cash for longer. If markets rise during that period, you could miss some potential investment growth.

Therefore, the right approach depends on your circumstances, investment objectives and attitude towards risk.

For an expat, regular investing can also be affected by currency. If you earn in a foreign currency but make investments in pounds, changes in the exchange rate can affect the amount ultimately invested each month.

The important principle is to have a method that is consistent with your financial plan rather than trying to predict every market movement.

This becomes even more important when regular investing is being used to build a pension or other long-term retirement portfolio.

Investment Volatility And Pensions For UK Expats

Pensions are one of the areas where investment volatility needs to be considered particularly carefully because retirement planning often involves investing over many years.

As a UK expat, you may have accumulated pension benefits in the UK before moving overseas. At the same time, you may have built pension or retirement arrangements in your current country of residence.

You could therefore have several different pension arrangements, each with its own investment options, charges, rules and tax considerations.

The investments held within those pensions can still rise and fall in value. Therefore, having money inside a pension does not remove investment volatility.

What matters is whether the investments are appropriate for the stage of your financial journey.

For example, someone who is 30 years away from retirement may have considerably more time to tolerate short-term market movements than someone who plans to start drawing their pension next year.

A simplified example shows why this matters.

Imagine two people each have a pension worth £300,000.

Person A expects to retire in 25 years.

Person B expects to begin drawing their pension in two years.

If both experience a 20% market fall, their pension values would temporarily fall to approximately:

£300,000 × 80% = £240,000

Although both have experienced the same percentage fall, the practical impact could be very different.

Person A may have many years before needing the money and may have time to experience future market recoveries and growth.

Person B may need to start withdrawing from the pension relatively soon, making the timing of the fall much more significant.

For expats, there can also be additional considerations around pension jurisdiction, tax residence, currency and the rules governing different pension arrangements. UK pensions, SIPPs and overseas pension arrangements can all have different features and should be assessed in the context of your wider financial circumstances.

Therefore, pension planning should not simply ask, “Which pension should I use?” It should also consider how the investments inside the pension fit your timeframe, retirement plans and capacity for investment volatility.

As retirement gets closer, this becomes even more important.

What Happens To Investment Volatility As You Approach Retirement?

As you approach retirement, the way you manage investment volatility may need to change.

This does not necessarily mean moving everything into cash or avoiding investment risk completely. Retirement can last for decades, so you may still need your investments to generate growth and keep pace with inflation.

Instead, the focus often shifts towards balancing growth with the need to protect money that you expect to use in the nearer future.

One important consideration is sequence-of-returns risk. In simple terms, the order in which investment returns occur can have a significant effect when you are withdrawing money from your portfolio.

Imagine two investors each retire with £500,000.

Both experience the same investment returns over a period of years, but one experiences a major market fall shortly after retirement while the other experiences that fall much later.

The first investor could be in a more difficult position because they may need to withdraw money while their portfolio is already worth less.

For example, if a £500,000 portfolio falls by 20%, it becomes £400,000. If the investor then withdraws £30,000, only £370,000 remains available to participate in any future recovery.

This is why retirement planning should consider not only your expected investment return, but also when you will need the money and how much you expect to withdraw.

As retirement approaches, it may therefore make sense to review:

• How much income you expect to need

• When you expect to start taking that income

• Your other sources of income

• Your pension arrangements

• Your cash reserves

• Your investment allocation

• Your exposure to different currencies

• Your expected retirement location

For an expat, the final point can be particularly important. If you expect to retire in the UK, your future spending may primarily be in pounds. If you intend to remain overseas, your future income and spending may instead be linked to another currency.

Therefore, approaching retirement is not simply about reducing investment volatility. It is about making sure the level and type of risk you take remains appropriate for the income you will need and the life you expect to lead.

This brings us to one of the most important questions in any investment plan: how much investment volatility should you actually accept?

How Much Investment Volatility Should You Accept?

There is no single level of investment volatility that is right for every investor.

The appropriate level depends on your goals, timeframe, financial circumstances and ability to withstand losses. Your attitude towards investment risk also matters, but it should not be considered in isolation.

For example, you may be comfortable with market fluctuations in principle, but that does not necessarily mean you should take substantial investment risk with money you need to pay university fees next year.

Similarly, you might dislike seeing your portfolio fall in value, but if you have secure income, substantial savings and 20 years before retirement, you may have greater capacity to tolerate short-term volatility.

It can therefore be helpful to distinguish between two questions:

Both are important when deciding how a portfolio should be structured.

For example, suppose you have £200,000 invested and could potentially experience a 20% decline.

That would mean a temporary reduction of:

£200,000 × 20% = £40,000

You would therefore need to be comfortable with the possibility that the portfolio could fall to around £160,000 during a period of significant market weakness.

That does not mean such a fall will happen, nor does it mean that the portfolio would necessarily recover. It simply demonstrates why understanding the potential size of a loss is more useful than thinking about risk in abstract terms.

For UK expats, the calculation may need to go even further. You should consider the currency in which your investments are held, the currency in which you expect to spend your money, your pension arrangements, property, taxation and any major future financial commitments.

Ultimately, the goal is not to find an investment portfolio that never falls. That is unrealistic if you also want the potential for long-term growth.

Instead, the goal is to find a sensible balance between growth, stability, accessibility and risk that fits your circumstances.

When your investment strategy is aligned with your timeframe and wider financial plan, periods of market volatility can become easier to understand and, importantly, easier to manage without making decisions based purely on short-term emotions.

A Practical Framework For Managing Investment Volatility

When markets become volatile, it can be tempting to focus entirely on what prices are doing. However, a more useful approach is to step back and consider whether your investments still make sense in the context of your wider financial plan.

For UK expats, this means looking at your objectives, timeframe, financial position, currencies and future plans together. The following questions provide a straightforward framework for doing that.

1. What Is The Money For?

Start by identifying the purpose of the money. An investment intended to fund retirement in 20 years may be suitable for a different level of volatility than money you expect to use for a property purchase in two years.

For example, if you have £100,000 set aside for a house deposit that you expect to need shortly, a significant investment fall could leave you with less money when you need it. By contrast, money being invested for a long-term retirement objective may have more time to experience both market falls and recoveries.

Therefore, the purpose of the money should come before choosing the investment.

2. When Will You Need It?

Once you know what the money is for, consider when you will need it. Your timeframe can influence how much investment volatility you can reasonably tolerate.

If you need £50,000 in three years, for example, a substantial market fall shortly before the money is required could create a difficult situation. However, if the same £50,000 is intended for a retirement that is 20 years away, you may have considerably more time to manage short-term fluctuations.

Your timeframe can also change. An expat who originally planned to remain overseas for another 15 years may decide to return to the UK sooner. When that happens, the investment strategy should be reviewed rather than simply left unchanged.

3. What Can You Afford To Lose?

This question is about your capacity for loss, rather than simply how comfortable you feel about investment risk.

Suppose you have £200,000 invested and the portfolio falls by 20%. That would represent a reduction of:

£200,000 × 20% = £40,000

Could you continue with your financial plans if your portfolio temporarily fell to £160,000?

The answer depends on your income, savings, debts, property, pension arrangements and future commitments. If a substantial fall would prevent you from meeting an important financial goal, the portfolio may be taking more risk than is appropriate.

For expats, it is also worth considering whether you have access to sufficient cash reserves in the country where you live, particularly if you are dealing with different currencies and banking systems.

4. What Currencies Are Involved?

Currency is an important part of investment planning for expats because your income, investments and future spending may all be in different currencies.

For example, you might earn US dollars, hold a UK pension in pounds and expect to retire in Europe and spend euros. Even if your investments perform well, exchange-rate movements can affect their value when converted into the currency you ultimately need.

Therefore, consider:

• What currency do you earn?

• What currency are your investments held in?

• What currency will you need for future spending?

• Do you expect to return to the UK?

• Could your country of residence change?

Understanding these exposures can help you avoid being surprised by currency movements when reviewing your portfolio.

5. Is The Portfolio Diversified?

Diversification can help reduce your reliance on one investment, asset class, country or currency.

Rather than asking how many investments you own, look at what those investments actually contain. Ten different funds may still have significant exposure to the same companies or markets.

A diversified portfolio could potentially include a combination of suitable:

• Equities

• Bonds

• Cash

• Property

• Geographic markets

• Currencies

The appropriate mix will depend on your circumstances. The objective is not to eliminate volatility, but to avoid unnecessary concentration and spread risk across investments that may behave differently.

6. Are You Taking More Risk Than Necessary?

Taking additional investment risk does not automatically lead to better results. Higher-risk investments may offer greater long-term growth potential, but they can also experience larger losses.

For example, if two portfolios are expected to meet the same long-term objective, there may be little benefit in choosing the portfolio with substantially greater volatility if the additional risk is not necessary.

This is why your investment strategy should start with what you need to achieve rather than how much return you would ideally like to make.

A useful question is:

“How much risk do I need to take to give myself a reasonable opportunity of achieving my objective?”

That is often more helpful than simply asking which investment has produced the highest return recently.

7. Could You Remain Invested During A Downturn?

This is an important practical test of whether your investment strategy is suitable.

Imagine that your £300,000 portfolio falls by 20%, reducing its value to £240,000. Would you be able to remain invested without changing your long-term plan?

If the answer is no, you may be taking more investment risk than you can realistically tolerate.

Of course, a market fall does not automatically mean you should do nothing. Your circumstances or financial objectives may genuinely change, and sometimes a portfolio needs to be adjusted. However, decisions should ideally be based on your financial plan rather than fear created by short-term market movements.

Having a clear strategy before markets become volatile can make it easier to stay focused when conditions become uncertain.

8. Does The Portfolio Still Fit Your Circumstances?

Finally, remember that your financial plan should not remain fixed forever.

Life as an expat can change quickly. You might move to another country, return to the UK, change employment, receive an inheritance, buy property, start a family or approach retirement.

Each of these events could affect your investment objectives and the amount of volatility you can reasonably accept.

It is therefore sensible to review your portfolio when your circumstances change, rather than waiting for a major market event.

Ultimately, managing investment volatility is less about predicting what markets will do next and more about making sure your portfolio is appropriate for what you are trying to achieve. By regularly considering your objectives, timeframe, capacity for loss, currencies, diversification and changing circumstances, you can approach market volatility with greater clarity and confidence.

How Benjamin Sharvell Can Help UK Expats

Managing wealth as a UK expat can involve decisions that cross borders, currencies, pension systems and tax jurisdictions. As a globally experienced financial adviser and professional financial planner, I help expat clients bring these different parts of their financial lives together into a clear and practical strategy.

My approach is collaborative, pragmatic and focused on your medium and long-term goals. Depending on your circumstances, I can help with:

• Future Planning: I help you plan for the financial goals that matter most to you and your family, including retirement, education fees, pensions and succession. I can also work with relevant technical and tax professionals where specialist input is required.

• Savings Solutions: I help you assess how you can make better use of your savings through suitable regular savings, lump-sum solutions, foreign exchange and offshore banking arrangements, while considering your circumstances as an expat.

• Pension Solutions: I help you review and understand your pension options, whether you have UK pensions or are considering arrangements such as SIPPs, QROPS, QNUPS or suitable Swiss, Irish or European pension solutions. The aim is to help you position your retirement arrangements around the life you want to lead.

• Property Solutions: I help you consider property as part of your wider financial plan, whether you are interested in property investments or require guidance around UK or international mortgages. This can help ensure that property decisions work alongside, rather than against, your broader wealth strategy.

• Insurance Solutions: I help you consider how to protect your wealth and your family against unexpected events through suitable health and life insurance solutions, taking your personal circumstances and international lifestyle into account.

Ultimately, my role is not simply to help you select investments. It is to understand where you are today, where you want to be in the future and how your investments, pensions, savings, property and protection arrangements can work together towards those goals.

As an expat myself, I understand that living abroad can bring both opportunities and challenges. My aim is to help you make the most of your expat status while building and positioning your wealth for the future.

Ready To Take Control Of Your Investment Strategy?

Investment volatility is an unavoidable part of investing, but you do not have to navigate it alone. For UK expats, having a clear strategy that considers your investments, pensions, currencies, future goals and wider financial circumstances can make all the difference.

If you are unsure whether your current investment strategy remains right for you, I can help you review your position and develop a practical plan around your medium and long-term goals.

Get in touch with Benjamin Sharvell today to discuss how we can help you manage your wealth with greater clarity and confidence.

Frequently Asked Questions About Investment Volatility

1. What Is Investment Volatility?

Investment volatility refers to how much and how quickly the value of an investment or portfolio changes over time. Higher volatility means larger or more frequent price movements, while lower volatility generally means smaller movements. Volatility is a normal part of investing and does not necessarily mean an investment is unsuitable.

2. Why Is Investment Volatility Important For UK Expats?

Investment volatility can be particularly important for UK expats because their finances may involve several countries and currencies. In addition to normal market movements, changes in exchange rates can affect the value of overseas investments when converted into pounds. Your pension arrangements, property, tax position and plans to return to the UK can also influence how much volatility you can reasonably accept.

3. How Can I Manage Investment Volatility?

You cannot eliminate investment volatility, but you can manage your exposure to it. Diversifying across suitable asset classes, geographical markets and currencies can help spread risk. It is also important to choose investments that match your timeframe, objectives and capacity for loss, rather than making decisions based solely on short-term market movements.

4. Should I Sell My Investments When The Market Falls?

Not necessarily. Selling during a market fall can turn a temporary decline into a permanent loss and may mean missing a subsequent recovery. However, there may be valid reasons to change an investment strategy, particularly if your financial circumstances or objectives have changed. Before making a decision, consider whether the investment remains appropriate for your overall financial plan.

5. Can A Financial Adviser Help Me Manage Investment Volatility As An Expat?

Yes. A financial adviser can help you assess your investments alongside your pensions, savings, property, currencies, income and long-term objectives. For UK expats, this broader approach can be particularly useful because financial decisions may involve multiple countries and regulatory or tax considerations. Professional advice can help you develop a strategy that is appropriate for your circumstances rather than reacting to individual market movements.