The importance of remaining patient
It’s no secret that the last few weeks have been some of the worst in recent history for global markets. Investors all around the world will have felt the effects of coronavirus on their investments in some way over the past weeks.
Predicting when markets will fall is near impossible. The same also goes for predicting when they will recover. There are signs of hope that the spread of coronavirus is beginning to slow, and that this might lead to some recovery in financial markets.
Just as markets are beginning to look forward, so should you. The key thing to take from this is that it’s really important to be patient. Markets might fall further – and could be up and down for a few months. But history suggests they will recover at some point.
If you take the last three decades for example – to be a successful investor there have been times you’d have needed nerves of steel. There’s been some big stock market crashes, from Black Monday 1987, the bursting of the dotcom bubble at the start of the millennium and the financial crisis in 2008 – to name a few.
But it’s important to remember that historically many of the stock market’s best periods have tended to follow some of the worst days, and that’s why you should avoid making impulsive and unjustified changes to your investments. In such unprecedented times it’s impossible to say what’s going to come next. But one thing we can say for sure is keep calm and think about the long-term.
In times like these it’s important to stick to your original investment plan with Skipton’s advice. Remember, it was tailored around you, with your long-term goals at the forefront. It was developed with specific timescales in mind – and it’s crucial you keep to these.
You should also avoid over thinking things by checking your investments too much. During turbulent times especially, it can be best to take a step back and do nothing
Repeatedly logging in to check how your investments are performing won’t change the returns you see in front of you. In fact a study has shown that, given the up-and-down nature of markets, if you were to check your portfolio once a month, you’d be more likely to see a higher number of negative returns than if you were to only check once every 12 months* because this could prompt you to act on emotion rather than logic.
Don’t forget, as you’re an ongoing service customer, a part of our commitment to you is to keep you updated on the performance of your investments every quarter – including updates on the reasons behind your recent returns.
It can also be hard to ignore market news in the 24-hour media storm we find ourselves in these days. But if you feel yourself getting caught up in the winds, you should ask yourself: Which is most important – the returns you make today? Or the returns you’ll have made five or ten years down the line?
The psychology of investing
You no doubt have underlying objectives for investing your money in the first place – some of which may invoke strong emotions. Therefore maintaining a rational mindset can prove difficult at times. There’s even been extensive studies that have shown that investors can sometimes make decisions based on instinct, rather than analysis**. What’s more, we don’t even realise we are doing it – or the impact it can have on our financial future.
Investing your money will always involve accepting a level of risk, because the value of your holdings will rise and fall. From an emotional perspective, some investors take a very different view towards a gain, compared to experiencing a loss – reacting more unhappily at a loss compared to the level of happiness they feel from a gain.
In other words, they can feel losses more keenly. And this can influence their decisions. If a fund is experiencing a good run of performance, they might be tempted to sell it too soon, believing a loss might be around the corner.
Yet doing so could deprive them of further gains. If markets experience falls, they might hastily encash their investments; and, as a result, take the loss but miss out on potential long-term gains when markets recover. Some may hold on to an under-performing investment too long, hoping it will bounce back.
Stick to what you know
Changing strategy in haste could result in capital loss and deprive you of potential long-term gains. Generally, the longer you are able or prepared to leave your investment, the higher the potential return.
If you’re thinking of encashing an investment, it’s incredibly important that any final decision is based on much wider considerations than just its recent performance. There are so many other factors, such as its long-term prospects.
Some investors can also experience optimism bias. This is where we can be over-optimistic during the good times by believing they will last forever. We then switch to forms of extreme pessimism during the downturns, feeling there is no light at the end of the tunnel.
The world will keep on turning. And whilst we can’t change the past – or even what’s happening now – we can try to make the best possible decisions for your future.
We understand these are difficult times for a lot of people. And you might be feeling anxious about your financial future. Please be assured we’re here to help you with any concerns you might have over your investments.
Of course, if you have any questions about your investments, we’re always here to help you. Simply call our Premier Service Team on 0800 085 0459.
Past performance is not a guide to future returns. Economic and market conditions experienced in the past may not be repeated in the future.