This is the time of year when your pension and investment statements start dropping through the letterbox. For some people it will be the first time they have experienced a sharp drop in fund values. We need to combine this with upcoming Brexit turmoil. Therefore, I thought it apt to address stock market volatility and Risk Vs Reward.
We are at the back of one of the longest runs of continuous gains without a serious stock market correction. Around 9 years of what seems like continuous growth. Of course, it hasn’t been, there have been several bumps along with way, most notably January 2016 when the EU Referendum was announced. However, it has always been followed by a quick recovery. The best example was 23 June 2016 (following the Brexit Vote) which saw one of the largest rises in fund values for a very long time. This was despite all ‘The Experts’ predicting the opposite. So, what can we learn from this?
Well first ‘The Experts’ have been predicting a slump for virtually all those 9 years, so one day they are bound to be correct. But how does this affect you
Well first, Investors should be prepared for this and will have a well-constructed investment with a fund manager that limits the downside. This is done by ‘Diversification’ and a good mix of Active and Passive fund management styles. There is no such thing as ‘No Risk’. With multi-asset funds such as these it would be virtually impossible to find a five-year cycle in recent times that has not had good positive returns. Therefore, the key is always look long term and don’t make any knee-jerk reactions when the inevitable slump happens.
In my 25 years advising on pensions and investments I have experienced several serious stock market corrections: 9/11, Tech Boom, Banking Crisis. Each one seemed like a disaster and the end of capitalism as we know it, but they were actually the best buying opportunities. Now may be an ideal time to take advantage of ‘Pound Cost Averaging’ and start making regular investments. For more information on how Pound Cost Averging works click here.
Luckily for me I have clients who have been with me all this time and remained invested and reaped the rewards. The testimonials on our website are proof of this. However, if it is your first experience, it really is a difficult time and I have every sympathy, but the adage “it is time IN the investment not TIMING THE INVESTMENT that matters”, has never been more appropriate. After all, what other options are there? Try to second guess the market? Experience suggests small investors will withdraw funds at the worst time and reinvest after the largest gains have been made. Meanwhile the serious institutional investors mop-up.
It’s a time for re-assessing your objectives, ‘How long am I investing for’ ‘what are the funds for’. In a lot of cases these are pension funds of at least a nest egg for retirement. If this is the case, it is possible you are investing for a very long time, if not life, so you may ask “what should I do?”, “What about Brexit?”.
Its easy for me to say but trust your Fund Manager/Provider to do the right thing, anything else is gambling. We are all aware of the quotes “past performance is not a guide to the future and investments can go down as well as up” but you should have been aware prior to making the leap. All I can advise is that you should learn from experiences of the past and look long term, inflation is your real enemy and every day is a new day (for examples on how inflation can erode the real value of money, please see our website, useful information “Inflation Savings Danger Calculator”.
This Blog does not constitute advice and is merely an opinion. Should anyone require further information on the above please contact of office for personal advice.
Below are a few articles from Money Mail and The Mail on Sunday, which you may also find to be an interesting read.