If you’re an investor, it has been a testing few weeks. Last month we wrote about coronavirus and the effect on stock markets while we have also looked at the history of bull and bear markets over decades to provide some historical context for the current volatility.
As the pandemic endures, uncertainty in global markets is likely to remain for some months yet. So, it’s at times like these when investors have to hold their nerve. Here are 13 things you should consider doing right now.
Many of the fund managers we recommend see the current situation as an opportunity to buy more of their favoured stocks at lower prices. These are stocks that exhibit characteristics such as:
- Sustainable returns
- Strong balance sheets
- Robust supply chains.
Many of these stocks have experienced a fall in price by contagion, purely because they are in a market that has fallen. Carefully selected, some of this stock represents good value and a good buying opportunity.
2. Get a second opinion before selling
If you are concerned and tempted to sell equities, get a second opinion. Talk to a friend or, even better, speak to a financial planner.
Financial planners are here to act as a sounding board and mentor, and to help you make the right financial decisions.
3. Use the lockdown to think about your future spending
Now is a good time to re-evaluate what it is that makes you happy. Additionally, lockdown is likely to mean that your spending patterns have changed, so it’s a good time to review your expenditure.
In a world where we can’t do many of the things we enjoy – eating out, going on holiday, cheering on our sports team, going to a concert or the theatre – think about the ones you miss the most (and the things you don’t miss).
Once life returns to normal, use these insights to guide your future spending.
4. Make sure you have an emergency fund
If you’re still working, think about how you would have coped if you had been laid off or furloughed.
Being prepared for a period of unemployment is a key part of financial planning, so ensure you have easy access to cash – perhaps in an instant access cash savings account or Cash ISA.
5. Don’t give in to behavioural bias
Studies have found that we feel twice as much pain from losses as we feel pleasure from gains. So, don’t give in to so-called ‘loss aversion’ or some of the other emotional biases that we feel when markets are volatile.
If the value of your home had fallen in the short term, it’s unlikely that you would have sold immediately and turned a paper loss into an actual loss. Treat your investments the same.
6. Keep control
While you can’t control oil prices, the value of the FTSE, or the spread of the coronavirus there are plenty of things you can control, including:
- What you pay in investment costs
- How much you spend
- How much you save
- Whether your affairs are tax-efficient
- How broadly you diversify
And, following on from point 5, you can also control your own emotional response to the volatility in the markets.
7. Look for money to invest
Don’t just continue your regular investments into the stock market. Instead, see if you can find extra money to invest.
The chances are that you are stuck at home, spending far less than usual on nights out, restaurant dining and travelling. So, put those savings to good use. Shares are on sale, so stock up.
8. Don’t second guess the markets
Just because the market has fallen doesn’t mean it’ll keep falling. Conversely, don’t assume that markets will bounce back strongly in the short term.
Trying to guess the stock market’s short-term direction is impossible – so don’t even try to.
9. Ignore the noise
You only have to turn on the television or open a newspaper to hear about the latest stock market turmoil. The truth is that short-term moves and daily predictions aren’t good for your investing health.
Try and tune out the noise and focus on your own plans, and the long term.
10. Remember that your expected returns should now be higher
At times like this, it’s good to remember that lower share prices should mean higher future returns.
Of course, we don’t know when we’ll get that better performance. However, for long-term investors, expected returns are now higher.
11. Change your mindset
Use this time to focus less on your losses and more on the opportunity that lower share values offer. Become the seasoned investor you’ve always wanted to be.
12. Think about your own future
Living in lockdown is hard, as is dealing with the underlying worry of a global health crisis. So, use this time to think about the fun things you might do when the crisis is over.
Make tentative plans with friends and family as to what you’ll do when the lockdown is lifted. We all need good things to look forward to and, indeed, the anticipation is often the best part.
13. Stay optimistic
Be optimistic. There are signs from around the world that coronavirus cases are starting to slow, and some countries have already announced measures to ease lockdown restrictions.
It may take weeks or even months, but if we all take the necessary precautions things will improve in time.
Get in touch
Seeking financial advice can help you to plan for your future, especially during a period of volatility. Find out how we can help you. Contact us by email at email@example.com or call us on 01189 876655.