So what advice can I give savers worried about the impact of the turmoil in China on their pensions and investments? My advice is to cover your ears, ignore the short-term noise and see this as an opportunity to start to top up rather than to sell down.
Market falls are unsettling but perfectly natural and nothing to be unduly worried about. Investors should not be thinking about what the market is doing this week, but looking ahead to where the market will be in five or 10 years’ time. Of course this is easier said than done for savers who have watched as the FTSE 100 slumped 17 per cent from the peak of 7103.90 on April 27 to 5898.87 on Monday evening. But this is sound advice from an Adviser with over 30 years’ experience in such matters, who deals in common sense rather than jargon.
AFTER such a turbulent week for stock markets around the world, many of us are fighting the urge to adopt that traditional investment strategy, cash under the mattress. Having worked hard to earn our money, and then done the seemingly sensible thing of investing some of it in the stock market for the long term, as we are advised we should, it is agonising to see it disappear so quickly. The FTSE 100 — for those who were not watching and were instead doing the far nicer thing of going on holiday — did not have a good week, to say the least. In fact, it entered a technical correction, falling more than 10% from its recent high.
On April 27, the blue-chip index of Britain’s 100 biggest public companies was hanging up the bunting after closing at 7,103, an all-time high. On Friday, it closed at 6,188, a weekly drop of more than 5.5%. That is quite a hit on the value of London shares in a week. Ouch!
This, however, is a good time to invest rather than run, like The Sound of Music’s problematic Maria, for the hills? I do not agree with such a cynical analysis. In fact, the canny investor is one who puts money into the market at the exact moment one’s instinct is to do the opposite. It is very satisfying to buy well-made clothes for a cut-down price, so why should we not do the same with shares and funds? If the cloth has been cut well (that is, the company run well or the stocks in a fund picked cleverly), it is better to buy at a discount than a premium? Of course!
The terror for those brave enough to pile money in rather than take it out at times of such market meltdown is that last week’s Footsie fall may be repeated this week — and the sequel might be even worse. And that there could be a further five sequels, each more gory than the last. Corrections of the sort we have witnessed in recent months are an occupational hazard for investors. When they occur, investors should think about topping up rather than selling down. Don’t just take my word for it. Take the advice of one of the greatest living investors and philanthropists, Warren Buffett, also known as the Sage of Omaha, who famously said: “Look at market fluctuations as your friend, rather than your enemy.”
Most people, I suspect, take the ultimate in laissez-faire attitudes to the market — an approach that involves drip-feeding money into the market every month and then forgetting you set up the regular transfer. Most people buy high and sell low and they get scared when the market goes down and then they wait too long to get back in . . . The advice I give to young people is to get a diversified global portfolio at low cost, heavily tilted towards equities, and then only read the sports section and not the financial section. You are NOT 65 (yet) – these are not YOUR numbers. Wait until you are 65 then read the numbers and then call me………………