Will the market crash again? How do you handle uncertainty in the stock market?
Hold your nerve
When financial markets are turbulent it is advisable to stay calm.
Turbulence in an aeroplane is usually the equivalent of a bump in the road (if you are driving a car). But it doesn’t feel like a small bump in the road when the plane is dramatically dropping at regular intervals and your jittery nervousness has turned to extreme fear.
All you can do however, is fasten your seatbelt, grip the armrest and hope for the best.
Turbulence on a flight is often ‘par for the course’. So are the downturns and upturns of the stock markets. They can seem unsettling at best, terrifying at worst. So, sit back, relax and focus on ‘weathering the storm’.
Slow and steady wins the race
Constantly dipping in and out of the market results in:
- Tax implications
- Returns affected (often negatively)
- Transaction costs
Most of the best days in the financial markets occur around the worst days.
In fact, 70% of the best days took place within two weeks of the worst 10 days1.
LGT Wealth Management LLP, used the following example (Note: the currency is presented as US dollars as the data source is Blackrock, Bloomberg.) (Please also see the accompanying graph below).
An individual invests $100,000 (around £88,000) over 20 years, from 1st January 2022 to 31st December 2021. If the person’s funds remained invested for the whole 20-year period, the initial funds invested would have grown to $616,317 (£543,130). If the investor had pulled out of the market for only the top five performing days, they would have accumulated a reduced amount of $389,263 (£343,038)2.
By pulling out of the market at the wrong time – even for a few days – the investor made nearly 50% less than if they had remained invested for the whole duration3.
What can you control?
Diversify, diversify, diversify. Invest on a regular basis, throughout personal and global downturns and upturns.
A well-balanced portfolio increases your chances of riding out frightening financial waves.
A qualified independent financial adviser can help you spread your investments throughout different asset classes – hence the term “diversifying” your portfolio. This can provide you with different income streams, and the option to explore low, medium and high-risk ratings. This can raise your chances of increasing your returns and reducing risk as much as possible.
Please Note: diversification is not a failsafe solution to losing income from investing.
Your Lloyd & Whyte financial adviser can help you with diversifying your portfolio effectively.
Making the most of your assets
Asset classes are a staple of a good solid portfolio. Different asset classes react to market conditions in their own way.
Why should you invest in various asset classes?
Different asset classes in the market rise and fall in value at different times. A qualified Independent Financial Adviser can advise you on when to sell and buy; spreading the risk and returns out so that the increases you receive and the losses you make – balance out. In other words, a good financial adviser will help you juggle your investments.
Asset classes consist of:
- Stocks (also known as Equities)
- Bonds (also known as Fixed Income)
- Cash (currency or medium of exchange)
- Property (Buy-to-Lets, commercial property and land)
- Infrastructure (utilities, railways, motorways, energy (pipelines)
- Commodities (gold, metals, crude oil, natural gas, wheat and grain)
- Cryptocurrencies
How do you handle uncertainty in the stock market?
It is difficult to ascertain as to whether a turbulent market is a temporary dip or a longer-term crash. There is evidence however, that investments and stock markets are affected by geopolitical events. Take for example the attack on New York’s Twin Towers on 11th September 2001 (known as 9/11). In the days following the crash into the towers, the stock market also plunged resulting in a $1.4 trillion loss. It was the biggest loss the market had seen in just one trading day4. Until Covid-19 came along.
The first half of the year 2020, when the pandemic broke out, saw one of the most dramatic stock market crashes in history.
From January to March 2020 tourism, leisure, fossil fuels and distribution, fossil fuel producers and the automotive industries all experienced a downturn of 20% to 30%. However, despite the drop in the market, food, pharmaceuticals, gas, water, personal goods, and medicine and biotech research all rose by around 20%5.
How we can help you
Your Lloyd & Whyte Independent Financial Adviser can advise around keeping your investments relevant to you; adapting them accordingly if your requirements change.
They can help you with:
- Your risk tolerance
- Your goals: short, medium and longer term
- Ascertaining your financial situation and adapting your financial plan accordingly
- Difference between volatility and risk
Keep your head.
Talk to us.
Keep talking to us.
Book an appointment with an Adviser now.
Email: info@lloydwhyte.com
What matters to you, matters to us
1-3. PDF: “Time in the market” – LGT Wealth Management LLP
4. https://www.investopedia.com/financial-edge/
5. Figure 2: https://ifs.org.uk/publications/impact-covid-19-share-prices-uk
Lloyd & Whyte (Financial Services) Ltd are authorised and regulated by the Financial Conduct Authority. Registered in England No. 02092560. Registered Office: Affinity House, Bindon Road, Taunton, Somerset, TA2 6AA. It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested.
