Time’s a better investment
IF you have been shocked by the damage this year’s stock market crash has done to your pensions and Isa savings, the best response may simply be to look away.
One in five investors check their investment portfolio at least once a day, while more than half review their portfolio weekly, according BMO Global Asset Management and F&C Investment Trust
While it is tempting to see where you stand after every surge or fall in the market, this could ultimately be damaging to your wealth.
If you are investing for a long-term goal such as retirement, then following every market movement increases the danger that you will panic and sell at the wrong time. For once, ignorance really could be bliss.
The stock market crash in March sent share prices hurtling down by as much as 30 per cent, ravaging the value of savings portfolios built up over decades.
However anybody who sold up fearing further falls will be kicking themselves today. They would have turned their paper losses into real ones and missed out on the subsequent stock market rebound.
Ross Duncton, managing director and head of marketing and direct at BMO, said ignoring your portfolio helps you keep calm in volatile times: “You avoid the temptation to react too hastily if you see your investments in the red.”
Most advisers say you should only invest for a minimum of five years, and ideally 10 years or longer, to help you look beyond short-term market volatility.
Younger people are particularly prone to reviewing their holdings too regularly the research shows, while older investors are wiser and calmer. Some 43 per cent say they only check their portfolios every few months.
Duncton said changing your investments every few months can backfire. He added: “You also avoid the added costs of frequently trading in and out of investments.”
Instead of selling up when share prices fall, look to buy instead. Drip feeding money into the market allows you to pick up more stocks when they are cheaper, he said.
Older investors tend to invest in lower-risk stocks and funds, with many shifting into less volatile bond funds as retirement looms.
Lee Wild, head of equity strategy at Interactive Investor, said its older share investors generally stick to quality blue-chip companies: “Younger customers have a greater appetite to take a punt on lesser known stocks. They tend to have a longer investing timeframe and can therefore carry more risk.”
Ignoring market volatility is harder for those who have retired and are withdrawing money from their portfolio to top up a pension income.
They should put themselves in a position when they can afford to look away, too. They can do this by building a pot of emergency cash that they can dip into for a year or two, while waiting for any stock market crash to reverse itself.
Share prices always recover, if you are patient. Like a watched pot, it you stare at your portfolio too hard it will never come back to the boil.