Take stock and don’t panic when market falls
STOCK markets are playing a game of snakes and ladders at the moment and investors are getting a bit nervous.
We can expect more of a bumpy ride over the next couple of years as the negotiations over our exit from the EU gather pace.
But this is what stock markets do. They rise and they fall.
It has always been this way and there is no reason to think it will ever be any other way. That is the nature of the beast.
Some people have made a lot of money when markets rise and more have lost a lot of money following markets on the way down.
For many of us ordinary investors who invest mainly through Stocks and Shares ISAs or our pension funds, the warning that we are given when we initially invest that “the value of your investments can fall as well as rise” doesn’t really seem to cover the panic caused when newspapers and TV news headlines scream that “billions have been wiped off the value of our investments”.
The immediate reaction is to sell up and get out of the market – that may seem the natural thing to do and the best way to minimise losses in case the market falls even further.
Unfortunately, it is rarely the best thing to do.
The only thing you will do if you sell is crystallise your losses and make it much more difficult to get back any money you have lost.
The FTSE can fall as much as five per cent in one day.
There are no savings accounts just now that pay that amount of interest in a year so if you take all of your money out of the market the day after that kind of fall, chances are you won’t recover for a while, if at all.
It’s important to understand the risks before investing in the stock market.
And to take time to look at the funds your pension and ISAs use to make sure you only have as much exposure to the stock market as you are comfortable with.
Don’t panic if stock markets start to fall. What goes down usually comes back up. Zero per cent interest rate credit cards can be great but they often charge a one-off fee when you transfer a balance.