How To Weather Investment Storms: 8 Quick, Easy Tips
This article is for information purposes only, and should not be regarded as financial advice. With investments, your capital is always at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Seek professional financial advice before embarking on any important investment or pension decisions.
Being financial advisers we come across lots of different attitudes to investing.
Some people have a low risk tolerance, and so shy away from investments which might offer higher potential returns, but carry lower certainty.
Others are more open to these investments, perhaps due to different temperaments or financial goals.
However, regardless of your risk tolerance, there will inevitably come a point in your investing journey when you see a dip in your investment performance.
Perhaps the stocks in your portfolio do not show the percentage return you expected. In more extreme cases, you might see your investments actually losing you money.
The reaction for most people in these situations is shock, panic, and a desire to take drastic action – anything, often – to salvage something from the situation.
In these circumstances, it is crucial that you keep a level head, remember some important facts, and act accordingly – not out of impulsive, extreme emotion:
#1 Remember you still own your investments
Perhaps the value of your investments has suddenly, dramatically dropped. That can be a scary situation to find yourself in. It can feel like you are losing everything.
However, in reality that isn’t actually the case. If you hold onto your investments, even after they have dropped, you still own them.
That still counts for something. You still hold the same number of shares that you did before the dip, as well as the same bond holdings.
#2 Market Falls Can Be Positive
When you look at historical investment trends, quite often what happens is that an asset decreases in value, and then eventually it climbs back up and exceeds its previous value.
This isn’t guaranteed to happen, but it’s worth bearing in mind: just because a dip happened, it doesn’t mean it’s all over and that you should sell everything.
Oftentimes, choosing to hold onto an asset while it experiences a dip can lead you to make you more money in the longer term.
#3 Disbelieve Your Omniscience
Nobody can be all-knowing when it comes to investments.
Even as qualified, experienced financial advisers, we cannot predict the future. Our job is to construct very sound investment strategies and portfolios, which meet your financial goals.
The reality is, you cannot effectively time the markets. So do not try.
When an asset in your portfolio falls even slightly, resist the temptation to impulsively sell it. Accept that you could not have foreseen this specific event, and that such trends are normal in an investment portfolio.
#4 Do Not Obsess
A very short, but important point. Try not to look at your investment portfolio too much.
Looking at it every 6-12 months is perfectly fine. This allows you to just make sure things are performing, overall, in line with your original investment goals.
Avoiding regular check-ins on your investments, however, will help you avoid unnecessary panic which can result in foolish decisions.
#5 Speak To Your Adviser
As financial advisers, of course we would say this! But it’s true, talking to an experienced investment professional really does help when you encounter investment panic.
We’ve seen all kinds of investment trends, turns and behaviour with hundreds of client portfolios. So we can help you see the bigger picture.
If you really are on the brink of doing something drastic in light of what you’ve seen happen in your investment portfolio, just talking it out with an adviser can often give you some perspective to make wiser, more informed decisions.
#6 Believe In Your Defensive Assets
When you built your investment portfolio with your financial adviser, you should have included an appropriate number and type of defensive, less-risky assets in your portfolio.
When some of your stocks and equities fall, for instance, believe that your bonds will help cushion you from some of the negative throes of the markets.
Because you wisely did not put all of your investment eggs together, you actually prepared for situations like this. What this means is that you have a strong, protective shield around your investments to help you ride through storms like this.
So, even though you did not – and could not – have predicted this specific dip, you did, in a way, see it coming. So that should help take some of the panic and shock away!
#7 Embrace The Uncertainty
Remember, when it comes to money there is always risk involved.
You could print all of your money out as cash, for instance, and hide it under your bed. That might seem safe, but it would still be vulnerable to a house fire or updates in the currency (e.g. think of the new ten pound notes!).
With investments, yes you are leaving yourself open to risk. You may even be experiencing some of the negative aspects of that right now during an investment dip.
However, there is a sense in which, at the end of the day, you as an investor simply need to embrace the risky nature of money, and investing.
There will always be risk and uncertainty. The more you can live with that, the happier you’ll be – and quite likely, the better your returns will be.
This isn’t of course a license to make reckless, ill-conceived decisions about your money and investments. You should always weigh potential risks against rewards.
We’re just saying, if you live in constant fear of financial uncertainty and failure, then you are shooting yourself – and your financial goals – in the foot.
#8 Dips Are Not Losses – Yet
As financial advisers we often remind clients that dips do not mean losses – unless you sell investments at the incorrect moment.
In other words, a dip might feel like you have lost something. But until you actually relinquish the investment – selling your shares, for instance, at a low point – you haven’t lost anything.
Remember why you invested in the first place. It was for a long-term goal, likely spanning over decades – not months or a few years.
You knew dips would come, as well as peaks. Over a long period of time, this is normal and sits appropriately within your long-term investment potential.