7 simple steps to guide you and keep your nerve when the markets start to give you the jitters
1. Remember what you invested for initially.
The biggest reason to invest is to get a better return than you would get from leaving your money in the building society or worse still spend it!
You most likely also invested for the long term. Over the last 20 years the FTSE All-Share index rose by 361% or 7.94% a year. But here’s the really interesting part. If you lost your nerve and pulled out and only missed the best 20 days, your gain would only be 60.8% or 2.4% a year.
Although this is past performance and cannot be relied on to predict the future, it is an indication of what the stock markets can do.
2. Remember how long you are planning to invest for.
It’s very natural to react to short term volatility, its human nature and we sometimes always question – have we made the right investment decision?
However for most of us the time horizon may be 5, 10 or 30 years from now, as hard as it may be the current fluctuations in the stock market are not really that important, just market noise.
3. Spread your risk
One of the principles of successful investing is to spread your risk, do not put all your eggs in one basket. Don’t go chasing that one fund that has a good track record. Chances are that it will not continue and even the best investment managers don’t have a crystal ball and can’t predict future returns. Our advice is to choose a range of different investments that give a range of different levels of risk. Only the most aggressive of investors would be investing their money into high risk equity funds.
4. Know how much risk you are taking with your money
The basic rule of thumb is that the longer you have to invest, the more risk you can afford to take and the shorter the time to needing the money, the less risk you can afford to take. Understanding how much risk you are taking is very important. Ask your financial adviser to tell you how much risk you are taking with your investments or alternatively ask us and we can look at it for you.
5. Invest regularly – drip feed your investment
Invest part of your monthly income every month. This helps smooth the risk trough what is called ‘pound cost averaging’. Sounds technical, but this is how it works. When the markets have fallen your monthly investment will be more units/shares in that month. Provided that the final price of the units/shares rises over time, your total investment will grow much more than if the price of the investment increases in a straight line of progression over the years.
6. Review what types of investment you hold
What was a good investment for you when you took it out may no longer suit you. Equity funds are higher risk and as such are more volatile. On the other hand fixed interest funds are more stable and should offer you greater protection in a volatile market. But beware, not all Fixed Interest funds are the same and some are much riskier than other. Check with your financial adviser first as he will be able to tell you if it’s right for you.
7. Get rid of poor performing funds.
Its good practise to keep all your investments under review. It’s easy to put investments on the back burner and get on with today’s living. However, very few investments continue to perform well year after year. So, get your financial adviser to review your investments at least once a year, so that you can get rid of any of the poorly performing funds.
To review your investments contact 1st Financial Foundations on 01908 523 420 or email info@95.154.196.167
