Stay calm in turbulent investment markets
Market volatility returned in August with more ups and downs expected if interest rates rise in the US and the UK. What should investors do? Here are some suggestions.
Look well ahead
It is easy to focus on the daily fluctuations of the stock market rather than the long term. This is similar to driving at night along dark winding country lanes using only dipped headlights. To drive calmly and safely you need to be able to use ‘full beam’ as often as you can to see the road well ahead.
Investment giant Fidelity has looked back over the last 10 years to see how you would have fared by investing in the UK and international stock markets. If you had invested in the FTSE All Share Index for one year only, you would have lost money in 20% of instances in the 10 years up to June 2015. However, if you had invested for 10 years, you would have lost money in fewer than 2% of instances.
Don’t try to out-think the market
It is really hard to get your investment timing right, especially in terms of market turbulence. Sharp falls in stock markets tend to be concentrated in short periods of time. Similarly, the biggest gains are often clustered together. It is also quite common for a large gain to follow a big fall (or vice versa). If you try to anticipate when the best time is to invest, you run a very high risk of missing the best gains. This can have a big impact on your long term return.
Drip feeding money into the stock market can take away some of the worry of investing. If the stock market does continue to fall, you will have only invested some of your capital. In addition, your future investments will take advantage of the cheaper share prices then on offer. Using annual ISA and pension allowances may encourage a certain amount of regular investment. As always, we are here to advise you.
Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances. Past performance is not a reliable guide to future performance. The value of investments can go down as well as up and you may not get back the amount you invested.