It’s easy for us to say ‘don’t panic’ and ‘don’t worry’ when actually you might be panicking like mad! We get it… the only truth we can agree on is that none of us knows what the future holds.
However, let’s use the past to predict the future – even if the FCA encourages us not to…
Here are four few golden rules of investing which we should all heed. Perhaps they prevail more so in times of uncertainty.
Golden rule #1 Keep Calm.
Whilst easy to say it is important to recognise that short term volatility is just part of the investment journey. Volatility is the price we pay for investment returns. As they say, there is no such thing as a free lunch.
Golden rule #2 Remain Invested
Whilst there is the temptation in a period of volatility to sell investments all this does is crystallise what at this stage is only a paper loss. Selling out in times of volatility will mean you miss out on the upside of the market recovery. Whilst history does not repeat itself, it does teach us lessons, and looking back at all previous ‘apocalyptic’ crashes these have all been followed by recoveries.
Golden rule #3 Diversification
Having in place a 3 pot investment strategy and ensuring that there are adequate funds in low-risk assets such as cash for short term needs, means invested funds can simply do that and remain invested.
Golden rule #4 Carry on Investing
In times of market falls this may seem a strange thing to say or do, but actually it makes sense. In a period of falling asset values, buying when these assets are lower in value makes perfect sense from a long-term perspective as you will benefit from greater returns in the recovery period. Whilst buying now may still in the short term result in further falls, over the long term this is a strategy that has rewarded long term investors. As an example the FTSE100 on 20 March 2009 stood at 3,842 pretty much the bottom during the financial crisis. However on the 25 March 2011, it stood at 5,900. By investing in the FTSE 100 on the 20 March 2009 would have 2 years later resulted in a healthy return of circa +35%
Without the melodrama of rolling out chart-upon-chart twinned with strange investor parlance, there is one simple chart below that illustrates the scale of the bull and bear markets since 1900.
Source: Vanguard Asset Management
We do indeed live in interesting times but taking Rule#1 at face value we might all be encouraged to not to panic at the very least.
If you’d like to chat about this or any other aspect of how we can help you at TWP Wealth please give us a call on 01625 582500 or email us at enquiries@TWPWealth.com
Coronavirus and the turbulence in the financial markets