With the appalling news surrounding the Russian invasion of the Ukraine this week, my thoughts are with those who are caught up in the horror, as they are with those who have friends of family over there.
With the implications of the war immediately having an impact on people, commodities, and business (the Ukraine is a huge supplier of things that we take for granted on a daily basis), stockmarkets across the world are, unsurprisingly shaken, leading to nerves for investors - especially those who are relatively new to putting their money in the markets.
Not wanting to take away from ANY of the human aspect of this atrocity, I am using this blog to help those who might be worrying about their financial exposure at a time when prices are going up and we're all just a little jittery!
Remember, that these are just my views, they don't constitute formal advice - for that, please please speak to your financial professional before you make any decisions.
1. However crazy the world is right now. However much we’d like to just have a period of normality, and however much we’re torn between being drawn to the bad news on the tv and never wanting to turn the news on again or read another article. The first thing is to not panic about your investments.
Panic and anxiety lead to stress, poor sleep and making emotional short term decisions without rational thinking for the longer term.
Know that this is not the first extreme period of volatility that stockmarket have been through, and it won’t be the last, and provided you have a diversified portfolio, there's nothing to suggest we won't get through it, as we always have done.
2. If you’re a regular investor - ie you make monthly payments to your ISA, pension or other investment account, then falling markets can be your friend, when the market is down, you’re buying more for your monthly investment.
Say you’re investing £100 a month. When share and fund prices are dropping, that means you’re buying when they’re reduced….so like buying cut price or discounted food in the supermarket, you can buy more with that £100 than normal.
Called "Pound Cost Averaging", when markets recover, which they will in time, your “bonus” purchases that you made in the tougher times will go up, and your performance will be better than if you’d stopped making your contributions.
3. Which brings me to…..don’t be too quick to stop making your contributions. As we’ve seen above, falling markets provide good buying opportunities. Tempting though it might be to temporarily stop making your monthly investments, or suspend paying into your pension “until things calm down” it’s could be preferable to keep going and remember that this is a long term plan, which will work out for you.
4. However, don’t be committing more than you can afford. Times are uncertain and we need to make sure that your emergency buffer and every day rent/mortgage/bills money is not going to be at risk by your desire to invest. Only put into the market, whether regular investment, or a lump sum, that money which you can afford to leave there for the longer term. If you think you might need to dip into it to pay your rent at the end of the month, stay well clear of markets.
Instead, focus on building up your cash savings. Not sexy, not giving big potential returns, but more likely to allow you to sleep at night and avoid money stresses and anxieties. And let’s face it, there’s enough stress going on in the world right now - you don’t need any more.
5. Don’t try and be too clever. Yes, we know that markets are going to go up and down…..and that means plenty of opportunity for selling at the top and then buying back again at the bottom. Right? The issue here is we only know when the peak has been reached, when we are past it. And likewise, we only know when the low point has happened when we are on our way back up.
Trading like this is for the brave and the professionals. You might get lucky, but you may well not, and chasing losses in a volatile market is neither profitable nor fun. Believe me.
Add to this the costs of trading frequently….your dealing costs, your stamp duty, your currency conversions, and the total can be hefty.
I’m not saying don’t do it - I’ve done plenty of “day trading” myself over the years, but I am saying don’t try and be too clever. Go into it with your eyes open. Don’t develop a gambling mentality and don’t use money you can’t afford to lose.
6. Investing is for the long term. I started my career around investments in the late 1980s….when the world was very different. No internet, no smartphones, and investment was still new to the majority of people. During my 30 year career I witnessed and helped navigate my clients through recessions, crashes and financial crises - and for a variety of reasons, political, economical, terror related, natural disasters and, of course, the pandemic.
Some of those events, those periods of time, saw very big drops, and watching the value of your hard earned money falling is no fun, and can be anxiety provoking. But every time, markets recover, and with a sensible approach and a diversified portfolio of investments, there's every reason to believe that your money will recovery any losses. The question is always "but when?" and the honest answer is that we never know. We don't have that crystal ball.
7. Remember, cash is paying nothing and inflation is high. Although your investment portfolio might show a drop, in value, there’s every chance this will recover all its losses and more, showing a performance over time.
Cash on the other hand is losing value all the time because the cost of living is significantly higher than the amount we receive from bank interest….with very very little prospect of that turning itself around and bringing your cash into a positive position. Risk of loss isn’t confined to stock markets, but potential for gain over the longer term isn’t going to be found in cash.
8. Yes, I know this is a repeat of number 4….but it is so important, and there’s a chance you glossed over it above, so it's worth repeating:
Don’t be committing more than you can afford. Times are uncertain and we need to make sure that your emergency buffer and every day rent/mortgage/bills money is not going to be at risk by your desire to invest. Only put into the market, whether regular investment, or a lump sum, that money which you can afford to leave there for the longer term.
If you think you might need to dip into it to pay your rent at the end of the month, stay well clear of markets. Instead, focus on building up your cash savings. Not sexy, not giving big potential returns, but more likely to allow you to sleep at night and avoid money stresses and anxieties. And let’s face it, there’s enough stress going on in the world right now - you don’t need any more.
9. Aside from your everyday money and emergency funds there's another reason to consider whether "Cash is King". Although I’ve spoken about keeping your money in the market…and adding to it regularly, this is a long term view, knowing that with every blip, crash, or crisis we’ve seen markets go through in the past, we have come out the other side and recovered.
But if you KNOW that you need your money in the shorter term, you may choose to take your money out now, and sit on cash. Whilst you are likely to be taking out less than it was worth a couple of weeks ago, or at the end of last year, we don’t have a crystal ball, so although we expect a recovery in time, we don’t know when that will be.
In the meantime, if you know you’ve got the cash there to cover what you need for the short term project or planned house purchase etc, you don’t need to worry about a recovery, you know your position. Of course there’s a risk that you’re out of the markets when they recover, or you sell “on the wrong day” so it’s always wise to take advice and talk your rationale through with a professional, but there’s a lot to be said for knowing exactly what you have, and knowing that you are covered.
10. Don’t get caught up in internet chat room hype or develop a FOMO.. Places like Twitter and Reddit will be full of people panicking, thinking they know best, shouting about their big wins, or their bigger losses and saying I told you so, switch off the chatter and take your advice and opinion from the professionals, investment managers and advisors have worked for many years in these environments, they’re well qualified to talk you through things, or provide well considered and informative regular newsletter type updates. Unlike Twitter-Tony who’s investment strategy has been akin to gambling and shouting, and who is nursing his wounds vocally.
If in doubt, stay away. Investing is not necessarily for all.
These are just my views based on my time as an investor and an observer, in my private as well as my professional life. However, I am not you. I don't know your situation, your affordability, your risk profile, so these points should not be taken as personal advice. If you need this, please speak to your financial advisor, investment manager, or stockbroker.
I'm a financial coach and money mindset mentor. If you're a woman wanting to make more of her relationship with money, and to learn about markets and ways of making your money work harder, please feel free to join my facebook group - Money Talk and Coffee. It does exactly what it says!
If this post resonates, and you know someone who would be interested in it please share and drop me a comment. I'm passionate about talking about money in a way that ditches the jargon and gets us more comfortable with it. After all, it affects every single one of us!
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