Will The Market Rebound After A Large Dip?
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.
At the time of writing, UK investors are facing challenging times. The COVID-19 outbreak and subsequent nationwide lockdown have had a big impact on the stock markets, and it is fair to say that there is widespread investor fear in the media and on social networks. Here at Castlegate, our Lincolnshire financial advisers wanted to offer some insight and assurances to help investors with their thinking during these challenging times.
We hope you find this content useful and informative. If you would like to discuss your own financial plan, please get in touch to arrange a no-obligation consultation, at our expense:
Always be prepared for hard times
The present market volatility and decline has come as a shock to many investors. After all, the last ten years (i.e. since the 2008 Financial Crash) have witnessed quite a rare period of overall, ongoing market upward performance. This bull market in Western markets ran up until early 2020 and encompassed periods of uncertainty and difficulty in the global economy, including the U.S.-China tariff war as well as Britain’s departure from the European Union. Throughout this period, it would have been easy for investors (especially new, inexperienced ones) to grow used to this new “market normality” and forget that markets also carry the risk of going down.
As a result, many of our Lincolnshire financial advisers have had to gently remind some people that falling markets are inevitable, and this is why an assessment of an investor’s risk tolerance is established prior to launching their investment strategy. In other words, we all hope and aim to grow clients’ investments off the back of growing assets, such as UK stocks. At some stage, however, a “dip” will likely appear at least once along this investment journey, and it’s important to establish, well ahead of time, how you would react to this and cope. After all, this is where many of the other assets in your portfolio come to the fore (e.g. cash or government bonds), helping to shield your portfolio from further loss and carry it through the storm.
Keeping the long view
During down markets, it’s important to remember the overall trajectory of the stock markets over the years and decades. Focusing on short-term market volatility is a natural human reaction when your portfolio seems to have suddenly “lost” a third or more of its value. However, simply removing your money from the stock market is only certain to do one thing: crystallise your losses. Keeping your head and taking stock of the bigger picture, however, can be a useful and calming exercise for helping you stay the course with your long-term investment strategy.
For instance, those investors experiencing the decline of 2008 (the Financial Crash) will have almost certainly faced the temptation to sell at least some of their stocks, as they plummeted downwards. At the time the FTSE 100 fell 31%, and the S&P 500 about 50% of its value. Those investors who panicked and sold all of their investments in these indexes, however, would have missed out on much of the growth over the following decade. Within this time, the FTSE 100 had climbed from its low point of about 4,000 to over 7,724. The S&P 500, moreover, went from about 683 to over 3,327.
For those facing pressures to withdraw from the market due to the COVID-19 bear market, our Lincolnshire financial advisers would, therefore, urge caution. History gives good evidence in favour of staying in the market during hard times, which is typically rewarded later through greater investment growth. Even if the current global situation moves into a depression echoing events in the 1930s, be careful not to crystallise your losses through panic selling. Bear in mind the long-term trajectory of the stock market, continue investing and focus on the long term.
Should I buy more stocks?
Whilst we would caution against trying to time the market, now could be a very good time to start a sensible, long-term investment strategy with your financial adviser. It’s certainly true that, at the time of writing, many stocks are much cheaper compared to the previous ten years, and beginning a “pound-cost-averaging” approach to a portfolio at this time could reasonably lead to greater returns over the long term (assuming everything is set up correctly).
Whilst it is fair to expect a market upturn in the near future, no one is certain when that might happen or if the markets will fall even further before things get better. Be careful, therefore, not to “dive into” the stock markets by emptying your short-term savings. It’s important to also ensure your immediate financial well-being and security, as well as identifying new opportunities for your investment portfolio. An experienced financial adviser here at Castlegate can help you achieve this delicate balance.
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense: