Take stock before you decide to sell as you could lose your money
EVERY so often, I feel the need to write something reminding readers that the stock market is a volatile beast and that investors stand to lose as much money as they might make by investing in it.
Markets have been a bit choppy for months but the last week or two has seen a pretty steep fall in the value of the flagship FTSE 100, the index of our 100 biggest companies.
This means that anyone with money invested in pensions or IDSAs might have seen the value of these investments fall recently.
The good news is few people actually invest in a fund that is an exact replica of the FTSE 100 index, so few people will lose as much as the market has fallen.
Many funds will contain smaller company shares that might have behaved differently and many funds will contain other assets such as property, gold, and cash, that haven’t been affected by falls in the stock market.
When investors put money in the market, they normally receive a warning that goes something like: “The value of your investments can fall as well as rise”, although that doesn’t really seem to cover the large falls in markets that we have seen recently.
But I did see a cynic write somewhere once that the warning should actually be: “The value of your investments can fall as well as plummet.”
The immediate reaction is to panic and get out of the market when we can.
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.
Instead, it might make more sense to hang on until the market recovers, which it will do.
Difficult, I know, but it really can be the only way of getting back any money you have lost.