The coronavirus rages indomitably onwards, creating havoc worldwide and showing no sign of abating anytime soon. The market news was bad enough last week but this week has begun with the FTSE 100 down a worrying 8.5% when it opened on Monday 9th March – its biggest fall since the financial crisis in 2008. Later in the day Wall Street plunged 7% leading to a brief suspension in trading amidst talk of a meltdown. When trading resumed stocks continued to slide.
Who could blame any investor for deciding to cut their losses and sell in such extreme circumstances? Panic is the natural reaction to the unnerving headlines about record losses gushing forth from news websites. If your stress levels are rising as you watch the value of your portfolio tumbling, this post might just help.
The fact is that stock markets have experienced periods of volatility ever since they began – some of them equally as alarming as this one – and they have always recovered.
That’s why we urge you to heed the advice of the sane voices being largely drowned out in the current furore. Such as Edward Moya of trading firm OANDA who has said that ‘the retail investor will likely want to wait this one out’. Or Wall Street chief, Stacey Cunningham, who has tried to calm things down by stressing the ‘long-term market for investors.’
And here at RG Wealth Solutions we advise the same approach in the face of tumbling share prices. As ever, we maintain that the best way to protect your nest egg in times of volatility is to sit tight and ride out the storm. Right now the value of your shares are down. While selling now might protect you from further loss in the short term it is also highly likely to mean that you miss out on the upturn which will happen once the markets recover. And recover they will.
Take your mind back to the crash of 2007 when many investors panicked and ended up trading shares for cash when their value was at rock bottom. While their bank deposits earned minimal interest and even risked erosion from inflation as interest rates were slashed, investors who held their nerve benefitted from the subsequent market bull run and saw the value of their shares bounce back up.
If you’re investing with a long term horizon you shouldn’t be looking at the highest return possible at any given time but aiming instead for consistency over an extended investment period. That won’t be achieved with knee-jerk reactions to market movements, even ones as dramatic as the one we are currently experiencing.
If you have a balanced and diversified portfolio this will offer you some degree of protection and staying invested is the way to go. Bear in mind that the best trading days often occur after markets have slumped and missing out on these can have a very negative impact on the value of your portfolio. It’s worth reiterating the results of a JP Morgan Chase study which revealed that over the period from January 1995 to December 2014, a $10,000 investment grew to $65,453, even with the 2008 crash to contend with. However, removing the ten best days of trading left the investor with just $32,665 – less than half the amount.
Instead of panicking, turn down the volume on what the media are saying, keep calm and carry on looking to the long term with regard to your investments.
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