How to survive market chaos
HOLD ON
IF YOU do not need to access your long-term investments for a pressing financial need, experts are encouraging investors to bite their lips and see out the market froth.
Gavin Haynes, managing director of Bristol-based investment adviser Whitechurch Securities, says: ‘The key at such times of heightened uncertainty is to maintain a sensible longerterm view.
‘It may seem uncomfortable in the short term, but selling into markets during periods of panic is not a sensible strategy.’
Holly Mackay, founder of website Boring Money, says investors should not make the mistake of selling at the worst time and retreating into cash.
She says: ‘If we were selling sun cream, we would not wait until November to do so. Equally, when do we buy stuff? When the likes of John Lewis has a sale.
‘UK companies’ core fundamentals have not changed overnight. We remain in the European Union and the process won’t start to be thrashed out until October. You could argue the stock market is simply “on sale”. If you are investing with long term intent, then times like this are when you think about buying, not selling.’
Edward Bonham Carter, vice chairman of asset manager Jupiter, urges investors to hold their nerve. ‘Time and again, stock markets have faced shocks that seem calamitous,’ he says, ‘but they do recover. Companies continue to trade, profits continue to be made and stock markets over the long term tend to go up.’
So on October 20, 1987, the day after Black Monday, the FTSE 100 fell 12.2 per cent, its largest ever one-day fall. It recovered, says Bonham Carter, though it took more than two and a half years to reach previous highs.
Neil Woodford, head of Woodford Investment Management, says: ‘Although market conditions such as these can be unsettling, we urge investors to look through this period of uncertainty and focus on the long term opportunity which remains attractive.’
DIVERSIFY
ASSET managers believe it is essential that investors diversify their portfolios across assets and currencies, mitigating risk – though not eradicating it. This means holding a mix of equities (both UK and overseas), bonds, cash and property. Dominic Rossi, chief investment officer at fund manager Fidelity International, says: ‘Diversification is key. This means having a balance between sterling and non-
sterling assets,s, alongsidee bond assets which will provide a store of value.’
This view is shared by Gina Miller at wealth manager SCM Private. . ‘Diversificaation across and within asset categories is essential,’sential,’ she says. ‘For r example, a sterling investort will ill see the impact of falling overseas markets mitigated by a weaker pound.
‘Equally, within the UK stock market, the impact on the largest stocks has been less than on smaller or medium sized companies due to t the ir g greater o overseas exposure.’ The FTSE 2 5 0 Index of the 250 largest listed c compani nies in the UK after the top 100, fell more than seven pe per cent on Friday. Th The FTSE 100 I Index,d b by contrast fell just over three per cent. Colin Morton, a fund manager with investment house Franklin, says some of the big global companies – the likes of Diageo, GlaxoSmithKline and Unilever – benefit when large overseas earnings are translated back into a weak sterling. If sterling remains weak, these will prove resilient investments.
INVEST ON THE DRIP
DRIP feeding money into shares rather than investing in one go is a good way to protect against falling markets, says Bonham Carter. Most investment platforms allow regular investment, typically monthly.
He says: ‘Regular investment plans minimise the risk of major timing misjudgments. Such plans allow investors to buy fewer units or shares in funds or trusts when prices are high and more when they are low, helping to smooth the peaks and troughs of equity markets.
‘Also, falls in the early years can be beneficial as investors can pick up market exposure at more attractive levels than during a bull market.’
TAKE ADVICE
IF YOU are worried about how your investment portfolio is going to bear up in a Brexit world, it might pay to take independent financial advice. Investment platforms that allow savers to trade easily have spawned a nation of do-it-yourself investors, but they don’t come with tailored financial advice.
GET USED TO VOLATILITY
VOLATILITY is likely to be with us for the foreseeable future and not just because of Brexit. Other factors – economic and political – overhang the world economy including the US presidential election in November, the continued slowdown in China and future interest rate movements in the US.