Shelter YOUR SAVINGS from the stock market STORM

As shares tumble, experts reveal the tricks that will help you . . .

WHAT’S GOING ON WITH THE STOCK MARKET?

SHARE prices tanked yesterday across the world. In total, nearly £2.8 trillion has been wiped off global stock markets after Wall Street suffered its biggest one- day fall on record overnight on Monday.

In Britain, the FTSe 100 fell nearly 3 pc in early trading before ending the day down 2.6 pc. Japan’s nikkei 225, Germany’s dax and France’s CAC 40 dropped by 4.7 pc, 2.3 pc and 2.3 pc, respectively.

The dip will have caught some savers with their guard down. Stock markets had been rising steadily, with few hiccups, since the financial crisis — and there was no obvious trigger for this week’s chaos.

Share price growth has been particularly strong since donald Trump was voted in as U.S. president in november 2016 and promised tax cuts to supercharge America’s economy. If you had invested £10,000 in the FTSe 100 then, you would be sitting on £11,200 today.

However, experts have been warning about a stock market fall for some time.

The phrase they’ve been using is ‘ market correction’. This simply means the market has risen too fast, too quickly, and is due to come back to earth at some point.

The problem with market corrections is no one can tell what the natural level should be.

For example, some experts believe stock markets are still around 20 pc too high, based on the real value of companies around the world. But, equally, savers and traders could start ploughing their money back into the market sooner, acting as a brake on price falls and even pushing the market higher than it was before this week’s dips.

WHY IS THE FALL HAPPENING NOW?

INVESTORS are worried central banks will increase interest rates to cool rising inflation.

If inflation gets out of control, families can afford less in the shops, company profits fall and the economy goes into a tailspin.

Rising rates counteract this problem. But they can be damaging for households and businesses because it costs them more to borrow money. Firms are forced to cut investment in their businesses and shoppers start saving instead of spending.

eventually, that can cause the economy to slow or even shrink. That’s why central banks will only hike rates when they think the economy is ready.

For investors, higher rates also make shares less attractive against other assets such as bonds with fixed interest rates.

The slide in global stock markets began last week on the back of strong wage growth data published in the U.S.

Then came excellent employment figures and economic growth forecasts. It may seem strange for positive data to push share prices down, but the good news led experts to speculate that the Federal Reserve, America’s central bank, could put up rates sooner rather than later.

Meanwhile, here in Britain experts are predicting two rises this year, possibly taking our base rate to 1 pc, with the next hike coming as early as May.

The talk of rises spooked professional share traders, who decided to cash in some of the profits they have made over the past decade. That caused stock markets to dip.

The problem was compounded by computers that automatically sell shares on behalf of investors.

As the market fell, these computers sprang into action and pushed prices down further.

James Sullivan, manager of the Coram Global Balanced fund, says: ‘ There is an element of herd mentality. Once one person shouts get your money out, everyone else follows regardless.’

WILL THE SELL-OFF LAST FOR LONG?

IT DEPENDS who you ask, but most investors believe share prices will continue on a downward path for several weeks — and maybe even a month or two.

Goldman Sachs, the U. S. investment bank, warned last month of an impending dip in world stock markets. In a note to big pension fund and other institutions, it said shares were overpriced and vulnerable to dips of up to 20 pc.

Other analysts believe shares could lose 10-12 pc of their value.

Mark dampier, of stockbroker Hargreaves Lansdown, says: ‘The markets has had an incredible run since it hit rock bottom in 2009, especially since Trump was elected. The market has been almost too calm. So a fall of more than 10 pc and even up to 20 pc wouldn’t shock me. This is just a very painful readjustment that may last a few weeks.’

david Jane, manager of the CF Miton Cautious Multi Asset Fund, says: ‘I don’t see a prolonged downward spiral. For that to happen you’d have to see falling company profits, which is not happening.

‘This is a normal, healthy correction — investors need this sort of kicking every now and again to get them back to reality.’

WHAT SHOULD I DO NEXT?

THe worst reaction you can have is panic-selling your investments.

Trying to time the stock market is a mug’s game because you can’t know when it has reached its highest or lowest points.

There is an old investment saying that goes: time in the market, not timing the market. It means keeping your money invested is a more powerful long-term strategy than running at the first sign of trouble.

To demonstrate, fund manager Fidelity analysed the returns on offer if you’d tried to second-guess the market over the past 30 years.

In its scenario, imagine three investors all investing a total of £ 88,000 into the stock market (measured using the FTSe All Share index) over 30 years.

First, Steady Steffi starts saving in 1988 and puts in £1,000 a year. every ten years — so 1998 and 2008 — she increases her annual investment by £1,000. Her total £88,000 investment would have turned into £285,884 over the 30-year period.

Second, we have Bad Timing Bob. He sits on his cash for years and doesn’t make his first investment until 2000, at the top of the market — the worst possible moment.

His poor guesswork means that his £88,000 only turned into £150,890 — about £135,000 less than Steffi would have collected.

Finally, Good Timing Gary only put his money into the market when the FTSe All Share was at its lowest before rising again. So he waited until 1998, ten years longer than Steffi, to make a first investment.

In theory, he timed his share purchases to perfection. But even though his guesswork was spot on, his £88,000 investment would have turned into just £221,185 — nearly £64,700 less than Steffi.

Steffi would have made the most because she spent ten years longer in the market. While she was earning a return on her returns, Good Timing Gary was getting next to nothing. That’s why, despite the stock market’s plunge, experts say