The world’s stock markets have been hit by fears of global recession and the debt crisis spreading to the world’s largest trading nations.
The FTSE 100 fell significantly yesterday wiping around £50 billion off the value of the UK’s largest companies, overnight stock markets feel dramatically in the Far East and today the FTSE has fallen significantly again.
So just how do you stay sane during this time of market turmoil, should you be taking action? We thought we’d put together a few hints, tips and general reminders to help you through this worrying time.
1. Take stock
Take time to take stock, don’t rush into anything.
Your first move should be to check to see how much your investment has fallen.
Many portfolios, including the ones we recommend to our clients, are diversified between different asset classes i.e. shares, gilts, bonds, property and cash. Not all of these asset classes will have fallen in value over recent days and in a diversified investment it is highly unlikely that all of your money will be invested in stocks and shares.
If you are concerned start by looking at how much the value of your investment has fallen in recent days and which parts of it are most affected.
2. Investments are for the long term
Most investments into stocks and shares are generally made for the medium to long term, during any investment cycle volatility (rises and falls in the market) should be expected; it is part of the natural roller coaster of investing.
As worrying as it may be, try to remember that markets do recover for example the FTSE 100 fell significantly during the financial crisis in March 2009 the FTSE fell at its lowest point to 3,530, within a year it had risen to over 5,500.
No one can predict how quickly a market will rise after a fall, but given sufficient time history shows that they do recover.
3. Hold your nerve
If you don’t need the money try to resist the temptation to sell your investment.
Many people have a perfectly understandable urge to sell their investment to prevent further losses; doing so simply turns a paper loss into a real loss.
If at all possible don’t sell your investment when markets have fallen.
The old saying “Sell high, buy low” might be overused but it‘s true.
4. If you need the cash now
Unfortunately there are occasion when the need for money coincides with a drop in the value.
If this is the case for you at the moment look at other alternatives for raising the money you need, could you use other savings? Do you have other investments which have not fallen in value as much as your equity investments?
If you are retiring in the short term, had planned to buy an Annuity and had not moved your pension fund into cash, a fall in the stock markets can hit you particularly hard. You may already have been hit by falling Annuity rates and now your fund is lower too.
In these circumstances think carefully whether you have other means of income which will allow your pension fund time to cover, could you even delay retirement?
5. Is now a buying opportunity?
This is the opposite view to selling your investment, with interest rates so low and relatively high inflation you may see now as the perfect time to make an investment.
Timing the market is never easy and not something to be recommended, it is of course possible that any investment you make now could also fall in value. However, some people will see falls in the world’s stock markets as an opportunity to invest, have a think about whether you are one of these people.
Don’t panic, take stock and see how bad the losses are, if you can possibly avoid cashing in your investment when values are down then do so, over time investment markets will calm down and history shows us those people who remain invested tend to fair best.
We do appreciate this is a worrying time for all investors, if you would like to talk through your own situation with an independent adviser then please do not hesitate to contact us on 0115 933 8433 or email firstname.lastname@example.org