Should you be worried during significant market falls?

Category: Financial planning


calculator(stocks)A recent Standard Life article suggests that in simple terms, you probably shouldn’t be worried about recent market falls. Most of us are investing over the long term, and significant market falls happen periodically. Generally, the wrong thing to do when markets fall by a reasonable margin is to panic and sell out of the market – this just locks in a loss. The right thing to do is remember why you’re invested in the first place and make sure that rationale hasn’t changed.

Although the FTSE fell below 6,000 on 22 September, the falls need to be looked at in context of the overall picture, however. For instance, the FTSE 100 Index had broken its all-time high earlier this year. Professional investors aren’t filled with panic at the moment, regardless of the situation the media is portraying. Most of them are viewing this as a ‘market correction’ – just bringing things that have got a little inflated back down to earth.

Recently the Chinese government has attempted to stimulate the economy by devaluing its currency and suspending trading on many stocks. All this has done is to spook markets, both in China and globally, with significant falls in global stock markets, including the S&P in the US and the FTSE. How negatively? Well, on 24 August, the day many in the media are calling ‘Black Monday’, the Chinese market was down by 8%, UK markets fell by over 4.5% and the US by over 3.5%*.

Standard Life Investment’s Head of Global Equities, Mikael Zhavrev, has also called this, “a buying opportunity, not a market inflection.” In other words, this reduction in the value of some investments is an opportunity to pick up a bargain and benefit when the value rises again.

So what should you do?

According to the Standard Life article, that depends on your investments. If you’ve picked a ‘hands off’ investment where someone is making all the decisions for you, then you should be fine. Just make sure they can invest in lots of different types of investments across different countries, ensuring that you are well-diversified.

If, however, you’ve selected your own funds or investments, you’ll probably want to make sure your choices still meet your needs. Again, revisit your original investment rationale. Why did you pick the various countries or asset classes in the first place? Are you invested in a diversified portfolio, or did you deliberately take a riskier single asset class or geographical approach? You might want to get some commentary from fund managers who are significant in the markets you invest in, and balance those against the outlooks of fund managers who manage significant multi-asset funds.

If you do decide to make changes to your investments, make sure they’re for the right reasons. Don’t react out of panic. And, if possible, take a long-term view! Always consider consulting an independent financial adviser when making any sort of decision regarding your future and the financial investments that are there to prepare you for it.




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