There’s a list as long as my arm of world events that have affected stock markets – we’ve seen the same very recently with Covid-19. Stock markets are based on human emotions, they overact to both positive and negative news, and this is no different.
These world events, whether a financial crisis or a military conflict, do unfortunately occur. With that comes investment volatility, which is par for the course.
For those of you who have read my blog articles before, you’ll be used to what I’m about to say, but I feel it is worth repeating.
Your investments are acting exactly as they should, and how I would expect given the current climate. Please remember:
• Diversification. Your investments are invested in a diverse range of assets. While your investments would have dropped, this diversification has limited the fall.
• Cash reserve. Having a cash reserve means you can access cash should you need it during a market correction.
• Investment time frame. You do not need to realise a loss by withdrawing/accessing your investments now.
• Low costs. Your investments are low (compared to the market), therefore there is less drag on performance or creating larger losses.
Timing the market is impossible to do on a consistent basis, you should stay invested because:
If you review historic bull and bear markets, they indicate strong returns are often seen after a fall in markets. But if you sell and are out of the market on the best days in markets, it can significantly reduce the returns on your investment portfolio. For example, missing just 10 of the best trading days in equities can reduce your annualised returns from 7.6% to 3.3%. Missing additional gains over 20, 30 or 40 days, is even more detrimental to your returns and your financial plan.
We have already put in the hard work to create your portfolio, to ensure you have a strategy and a financial plan. While it might sound counter intuitive to do nothing, this is the best course of action.
You may remember my blog post from August last year, titled How to resist the most common investment mistake. This was written for an event like this. The main takeaway from this was, don’t pay attention to that panicked-looking person in the mirror!
Below are my three top tips to help:
