Special Hot Topic - The stock markets
Political issues between Democrats and Republicans, Standard & Poors downgrading the US credit rating, sovereign debt in Europe especially Greece and Italy are just a few of the issues in recent months that cause the stock markets rise one day and then fall the next.
So how does all of this affect our clients who have pensions and investments invested using the Simple Solutions investment process?
The strongest point that I would like to make is that they have a diversified portfolio that has been designed based on their attitude to risk. This will include a portion; usually 15% invested in a commercial property fund and up to 40% in corporate bonds funds.
So the message is, don’t just assume that because the FTSE has plummeted that your investment has gone down by the same amount.
Our client’s funds have been invested for the medium to long term and one of the fundamental strategies for these investments is that they never act upon a kneejerk reaction. It may be tempting to sell everything and hide the money in a biscuit tin under the bed, but selling after such a dramatic fall in the markets simply means crystallising a loss.
Paper losses are not real losses until the investment is sold. Therefore it is best not to sell in a falling market unless you are forced to for a specific reason.
When you have a medium to long-term view, these are in fact the times to buy. Stocks are getting cheaper and company fundamentals are in robust shape.
So is this an opportunity? If you are a regular visitor to our website you will find some interesting quotes from Warren Buffett on our Resources page.
- "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
- "Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years."
The first quote is quite powerful. The market is fearful just now and that is when he sees opportunities to buy.
The second quote endorses my advice at this time.
Unfortunately it is very difficult – if not impossible – to time a market top or bottom. The best strategy for those looking to invest new money is to ‘drip feed’ into the market.
If you have a lump sum to invest it can initially sit in a deposit fund and be phased into other funds over a period of months. This provides the benefit of £ cost averaging (google it for an explanation).
If you would like to discuss this further please contact us. If you would like us to review your existing portfolio please complete the form that is available from our home page on our website and we will respond to you as quickly as possible.
If you would like to arrange a meeting with one of our Advisers to discuss how we can help you please contact us.