“If the stock markets keep falling, I’ll have nothing left…”
“Wouldn’t it be wise to simply sell up and cut my losses?”
“With all this going on, I can’t just sit here and do nothing…”
These are the three things I hear most often when markets get jumpy – and the chances are that you or someone you know may have been thinking them too…
Of course, it’s easy to feel relaxed about your investments when they’re going up, but like everyone, you might find yourself starting to feel more than a little nervous when things get volatile – or indeed fall.
And of course, sensational news headlines can leave you feeling a whole lot worse…
However, there are five key things to bear in mind:
1. While the face value of the shares may have temporarily dropped, you still hold the same NUMBER of shares (or units, if you’re invested in a fund).
2. Downturns on the stock market are far less rare than you might think! And the good news is that even after extended bear markets – and there have been nine of these since 1980 – over time, the markets have first recovered and then gone on to grow. Panic selling in a downturn means that you’ll miss out on the ‘recovery and growth’ upswing – which often happens really swiftly.
While it’s tempting to make a knee-jerk response and just sell all your investments, actually, what smart people throughout history have recognised is that ongoing prosperity comes from holding their nerve.
(Interestingly, calculations from online investment platform Vanguard – based on data from Refinitiv using the Standard & Poor’s 500 Price Index – reveal that great trading days often occur in ‘bad years’ while the worst trading days occur in ‘good years’.)
3. There’s an old adage that says that financial success isn’t about ‘timing the markets, but about time IN the market’.
Professional investors know that volatility provides opportunity – and that counter-intuitively, growth can be achieved in falling markets as well as in rising markets. This is because when share prices fall, they’re cheaper to buy!
And even if you’re not buying and selling shares yourself, being invested in funds means that there’ll be analysts and professionals behind the scenes taking advantage of all the opportunities.
Unsurprisingly, they’re extensively trained in how to minimise losses and make the most of the markets – whether they’re going up or down.
4. Being diversified across the market is really important – and while this is a significant benefit of holding investments in a professionally managed mutual fund, it’s also a key part of what we do for all our clients within our risk management strategy.
5. It’s important not to let your investments dictate the quality of your life. For each of our clients, we create a cashflow – which projects to at least age 90 – which means that we’re forearmed with the knowledge of what amounts of money you’ll need (and when you’ll need them). This means that cash can be set aside – and not invested – so that you’re not inadvertently forced to sell investments in a ‘dropping market’.
Indeed, for this reason, we also always suggest that clients have a ‘cash float’ of six month’s expenses plus any forecasted planned expenses for the next year or two – so that again, there’s no need to sell investments other than at an optimum time.
So, what should you do now?
The best thing you can do right now is sit back and do nothing – in the same way that when you’re flying to your favourite holiday destination and the aircraft you’re in hits turbulence, rather than reach for a parachute and jump, you simply sit back safe in the knowledge that your well trained captain has everything under control.
True, doing nothing can feel counter-intuitive – but actually, it’s often the very best thing you can do.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
