What should I do with my investments when markets are falling?


19-03-2020
FTSE All Share graph - effecti of missing the best days

The significant worsening of the coronavirus situation and new wide-reaching government advice has seen global stock markets fall further this week. Understandably it has left many people uncertain as to what to do with their pensions, stocks & shares ISAs and other investments.

Sarah Austin, Independent Financial Adviser from Martin-Redman Partners, writes:

It’s time in the market, not timing the market
At Martin-Redman Partners we believe that time in the market is the best way to give you good returns over your investment timeframe. This means staying invested over the longer term, riding out the peaks and falls.

It is human nature to be concerned when markets fall, even temporarily, especially when you are seeing the value of your hard-earned pension, stocks & shares ISA or Unit Trust reduce in value. This is something behavioural economists call ‘loss aversion’, which this video from Morningstar explains sums up very well and is well-worth five minutes of your time.

When some people see the value of their plans falling, they may consider taking money out of funds and reinvesting this later – to try and time the market. Timing the markets involves trying to second-guess the ups and downs, with the hope that you will buy when prices are low and/or sell when they are high. This is impossible to do, as there are so many variables affecting market movements at any given time.

However, if you sell a fund when it has lost money and is down, you are changing the paper loss into an actual monetary loss. Your money is then out of the market and could miss out on future gains when the markets turn around and show recovery – otherwise known as a ‘lost opportunity cost’.

Lost opportunity cost
Fidelity illustrate this lost opportunity cost via the graphic above. It illustrates what would happen to your overall return if you had invested £1,000 investment into an FTSE All-Share index fund from 2004 to 2019 but had taken money out of the market and missed the day with the highest growth.

In summary:

  1. It is very easy to miss gains when you try to time the markets
    The majority of the best stock market days throughout history have come amid significant market downturns.

  2. By implication, time invested in the market, not timing the markets is key to investing.

Next steps:

If you are concerned about market falls, try to take an objective view or get independent financial advice if you are finding this difficult.
Many studies have found that people often make poor decisions about investing when the fear of the unknown gets in the way. If you have an Independent Financial Adviser (IFA) they can be a great sounding board and help you make sensible long-term financial decisions to keep your investment plans on track.

If you don’t have an Independent Financial Adviser please get in touch with us to arrange a time to talk through your investments.

Arrange a meeting to discuss your pension and investment arrangements
Please get in touch with us to arrange an introductory meeting, at our cost. At Martin-Redman Partners we have both male and female advisers who can help you make the most of your money – either by managing your investments and/or assisting with your financial planning.

To find out more about how we can help, or if you have any questions about your investments please get in touch by calling us on 01223 792196 or emailing info@martin-redmanpartners.co.uk or call us

About Martin-Redman Partners  

We are a team of experienced Independent Financial Advisers (IFAs) who can advise on your personal or business financial arrangements. We have been building trusted relationships with clients for many years by articulating clear and tailored recommendations in areas ranging from investments to retirement planning, to complex estate planning advice.  

We offer expert independent financial advice throughout Cambridgeshire, Leicestershire, Suffolk, East Anglia and the South East.  Many of our clients are within, or are in the surrounding areas of Cambridge, Grantham, Stamford, Bury St Edmunds, Frinton on Sea, Ely, Peterborough, Huntingdon, Cambourne, Newmarket, Soham and Oundle.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction. 

 

We provide independent financial advice on investments, pensions, inheritance tax planning and protection. We work with private individuals, businesses and professional introducers, such as accountants and solicitors, to ensure our clients financial advice needs are met.

Martin-Redman Partners