Investing through rocky times

As the COVID-19 pandemic continues to hit investors hard, here’s how to weather the financial storm and continue investing in rocky times.

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Investing during the Coronavirus pandemic

The Coronavirus pandemic has taken its toll on markets around the world, causing many investors to pull a record £10 billion from funds in March alone. The financial world is dealing with the consequences of a completely unprecedented event. The FTSE 100 in mid February was at 7500 points, and had dropped to an alarming 5000 by March. Exchange rates are appalling, currencies are weaker, and many investors are facing all-time low rates of interest.

Actions that have been carried out by governments (seen as necessary steps to contain the spread of the virus), such as closing shops and entire industries, have had a devastating effect on global economies, and have even shocked the most seasoned of investors. If you have shares, it is likely that their value has fallen by at least 25%. Understandably, if you are new to investing, this can all feel pretty overwhelming.

Bear in mind however that although performance of a fund can never be guaranteed, your money should do far better in the long-term and mature much more quickly than if it was just sitting in a bank account with a very low rate of interest. By purchasing funds, stocks or shares, you are accepting that you may experience a few bumps along the way in your investment journey. Depending on the type of investment you have, your funds may have faired better than others.

When riding out rocky times in the investment world, you must stay calm and remember that your investment is for the long term. Current events will not remain that way forever – markets are constantly changing, and always bounce back, even from terrible recessions. This may however take longer than you had anticipated, so sit tight and remain patient for the best outcome.

Don’t panic

During a financial crisis, your hunch may be telling you to cash in your funds while you can, before you lose too much more money, but you shouldn’t. Stay calm, and don’t panic. Don’t even log in to your account to see how your funds are performing. Take a huge step back and let the crisis run its course. Remind yourself of the various reasons why you chose to invest in the first place, and your long-term investment goals. You’re not going to withdraw your funds within the next five years (at least, we strongly advise that you don’t), so at this point, the best thing is to wait things out until the waters have calmed. If you panic, you are less likely to make a rational decision in the moment, and this could hurt your investment opportunities in the future.

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To sell, or not to sell?

If you can see that markets are performing disastrously, it might seem like the most obvious solution to just sell up, before any more damage is caused. Remind yourself that this could hinder the value of your capital in the long term. Intuitively, when things go wrong, we instantly want to try our best to fix the issue. Pulling out of investments isn’t the answer. Remember that sometimes a market can recover quite quickly. If you cash in before things get too low, consider how much money you’ll lose. If you do nothing, let things ride and remain patient, will you end up with more money in the long run? The chances are that you will, as difficult as it is to believe during a crisis. As a market recovers, your investment will benefit from the growth that is experienced as funds and shares stabilise again.

You should also consider rocky times as a way of re-evaluating the levels of risk you’d like to take going forward. When faced with the reality of a financial crisis, many investors experience a wake-up call and realise how much or how little they are really prepared to lose. If you have realised that your level of risk is much lower than you had anticipated, it may be worth moving your assets to low-risk funds.

Diversify your portfolio

Make sure that your portfolio is diverse enough that it can withstand any rocky times experienced by financial markets. Many investors spread their investments across various industries, covering gilts, shares, stocks, emerging markets, funds, ISAs and so on. By diversifying your portfolio, you are not exposed to large levels of risk in just one market, as you are dealing with several markets all at once. If one fund underperforms, it is likely that somewhere else, another of your investments may be performing well, outweighing the loss. If you make regular small investments on a monthly basis, this is also a common way to level out losses, because ‘pound loss averaging’ navigates the rises and falls of stock markets. When stock markets rise, you buy less shares in a fund, and when they fall, you buy more. Putting a regular amount of money into the stock market every month helps your savings to navigate the rocky times that investments can experience.

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