We have seen exceptionally volatile markets and it is unlikely that this will suddenly change to a more positive outlook. The financial worries are contagious, so instead of it applying to one region only, it instead is spreading all around the globe. Whether the problems will be short-lived, or (as the pessimist in me worries) it will take longer to restore. But you can’t spend forever waiting for the market to turn, so what should you do in the meantime? What are the do’s and don’ts of investing?
1. Make sure that the investments pass the ‘sleep at night test’. There is no point staying awake and worrying. When markets fall, instead you should make sure that when you look at the level of risk that you spend more time considering the potential impact of a fall in value rather than concentrating on the potential return.
2. Do make sure that you have enough money that is accessible. This may mean earning some pretty poor interest rates on that proportion of money, but it helps to pull the overall level of risk down and means that you won’t need to access cash that needs a longer time frame.
3. Do make sure you review your investments. Circumstances change and markets certainly do, so it is unlikely that investments that you have set up will always be right in the future. You service your car, you service your boiler, so please do service your portfolio.
4. You would expect me to say this, but do get professional advice. You may have enough time to research what investments to make, but do you have enough time to continue that and decide when is best to sell out of a holding? We are all busy with enough commitments and outsourcing is the way to keep on top of many key responsibilities, so using a professional advisor not only helps to reduce your workload, but means that your investments should be looked after and monitored by someone with specific expertise.
5. Do understand that times when the markets are falling significantly are not unusual and are perfectly normal. Prices will rise, prices will fall, prices tend to rise again.
1. Sell your investments which are falling in value. This is absolutely the worst time and you will allow people to make money out of you.
2. Be scared of investments so much that you only invest in cash – opportunities remain and the return of cash can be low compared to inflation. Cash does not tend to be a long term solution.
3. Be too focused in your investment approach. Even the most aggressive of investor needs to have a spread and balance of different holdings.
4. Listen to your next door neighbour. Many people complain of hearing a story by someone at a dinner party or over the garden fence, where ‘so and so made 300% and you should do it too’. This is utter nonsense and any investment that might be of interest to someone else is not guaranteed to suit you. Indeed your circumstances, outlook and requirements could be completely different.
5. Ignore your ‘worry monster’. If you are presented with an investment and cannot shrug off a concern or worry, follow it up and don’t just accept that you are wrong. You know your circumstances best and therefore you should be concerned about something that rings a ‘worry bell’.
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