So, the inevitable has happened, and stock markets have taken a tumble over the last few days.
Markets ended last week down around 5%. It’s mainly due to the expectation that US and UK interest rates will climb, as their economies strengthen – on the face of it, a positive thing.
What is the sensible investor to do?
How you react is critical. The next inevitable event is that doomsayers will urge you to panic.
But this is not terribly helpful to most investors in Ireland. Panic – and then what?
Moneycube sees it differently.
Our advice this week? It’s the same as our advice last week.
Stay the course
There are lots of reasons why doing nothing is the best approach.
Above all, if you were investing on sound principles last week, you are investing on sound principles this week.
Sound principles include investing for growth over the medium and long term, putting your money in diverse assets, and keeping your costs low. Staying true to this leads most investors to conclude that the best reaction is no reaction.
As Holly Mackay of Boring Money put it last week, “The best advice I can give anyone in such times is to forget their online trading password”.
Panicking costs money
Remember that selling has costs too.
Selling your investment now means you will almost certainly incur early exit taxes, and (if you’re with one of our expensive competitors), early exit charges and trading costs.
Then there’s the danger of missing the bounce-back.
It’s well-known that many of the best days in the market come after some of the worst days. The trouble is, it’s often new investors who sell out at bottom by reacting too quickly. This article has a great chart of the costs of panicking compared to playing it cool (it says panicking costs over 35%!)
Is there anything you should do differently?
Here are three simple checks you can run on your investments right now.
1. Make sure you have some diversity in your portfolio
Investing through a well-diversified fund, or selection of funds, containing a mix of property, bonds and commodities will help stabilise your investments. A multi-asset fund where the fund managers rebalance to maintain the same risk/ reward profile over time is ideal for this.
2. Consider drip-feeding your investment
Many funds have a facility to drip-feed your lump sum over six or 12 months. (In finance-speak, this is called Euro-cost averaging). This way, you’ll never end up buying at the market peak, because the price will average out over the six or 12 period you choose.
3. Talk to Moneycube
You just might find we can help you access better diversified, cheaper investment products than you’ve been using until now.
Keep calm and carry on investing.
