When the ups and downs of stock markets make the front page of national newspapers – as they have done recently - it can be terrifying for those who know their long-term wealth is tied up in equity investment. The temptation is to squirrel all your assets under the bed and never take another risk again.
But past experience of market volatility suggests that this is exactly the wrong thing to do. Gavin Haynes, managing director of investment specialist Whitechurch Securities offers some words of reassurance: “Volatility can be unsettling and it is important to complement your stock market exposure with lower risk investments and cash to provide a balanced portfolio (which I hope your adviser has done for you).
“My current advice to equity investors is that while recent events are alarming, history tells us of the value of taking a long-term perspective. The best way to combat stock market volatility is to remain invested and if you invest in equities, you have to be prepared to wait it out and not trade on short-term sentiment. Emotion means investors tend to get tempted into buying assets when prices are high and frightened into selling when prices are low!
“It is important to remember that markets are anticipatory and an exceptionally bleak economic scenario is already priced into many areas of stockmarkets following recent events. My belief is that many areas of equity markets offer good recovery potential on a three year view.”
Selling out at the bottom of the market is a mistake made by many private investors. Providing you are invested for the long-term, it will almost certainly serve you better to keep your cash where it is and try to ignore all the short-term ‘noise’.
Cherry Reynard, Independent on Sunday
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