How to survive the inevitable falls
Investors have experienced very strong investment markets since the Credit Crisis a decade ago. Some may have forgotten, or never experienced, the pain and fear that such events can induce. When falls do happen, how investors behave will have a great bearing on the longer-term outcomes they will experience.
It is important to remember that equity market falls are an inevitable part of the process of building wealth through equity ownership. Today, £100 invested at the bottom of the global equity market fall in March 2009, would be worth around £345 (before inflation and any costs). How can you put market falls into perspective and learn to survive them?
Things to remember:
- Embrace the uncertainty of markets – that is what delivers you with strong, long-term returns.
- Do not look at your portfolio too often. Once a year is more than enough.
- Accept that you cannot time when to be in and out of markets – it is simply not possible.
- If markets have fallen, remember that you still own everything you did before (the same number of shares in the same companies, and the same bond holdings).
- A fall does not turn into a loss unless you sell your investments at the wrong time.
- Falls in the markets and recoveries to previous highs are likely to sit well inside your long-term investment horizon i.e. when you need your money.
- The balance between your growth (equity) assets and defensive (high quality bond) assets was established by your adviser to make sure that you can withstand temporary falls in the value of your portfolio, both emotionally and financially, and that your portfolio has sufficient growth assets to deliver the returns needed to fund your longer-term financial goals.
- Be confident that your (boring) defensive assets will come into their own, protecting your portfolio from some of equity market falls. Be confident that you have many investment eggs held in several different baskets.
- Your adviser should be there – at any time – to talk to you. He or she can act as your behavioural coach to urge you to stay the course.