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STAYING INVESTED AND GIVING YOUR
MONEY THE GREATEST CHANCE TO GROW
by Sam Hulson of First Equitable
Perhaps the most common investment advice is to stay invested. But
with markets being so volatile, the ease of sticking to that advice has
been sorely tested in 2020. Even though we’ve seen global markets
bounce sharply from their March lows, understandably there will still
be those investing for retirement who remain worried and wonder
what the best approach is for the remainder of the year and beyond.
Depending on what stage of retirement planning you are currently at, if
time is on your side, the evidence shows that remaining invested for the
long term is one of the best things you can do for your overall retirement
wealth. While it can be tempting to take money out of the market in the
short term, it is highly likely to deliver lower overall returns.
INFLUENCED BY MARKET SENTIMENT
It’s important that your long-term investment objectives are at the
forefront of your mind and you align your actions with them. Any
dramatic changes to an investment stance in the current environment
risks being costly. It may make sense to consider doing things gradually
or waiting for more stability.
Another consideration is that market liquidity can be poor in the current
environment, which makes transactions potentially more expensive.
With the omnipresent 24-hour media, it is too easy to become overinfluenced
by market sentiment, which makes decision-making with
long-term consequences particularly difficult at times like this.
DIVERSIFICATION
Investment diversification will also help protect your investments from
adverse market conditions. Diversification can be neatly summed up as:
‘Don’t put all your eggs in one basket.’ The idea is that if one investment
loses money, the other investments will make up for those losses. It’s
one of the best ways to protect your investment portfolio from the many
forms of risk. Diversification can’t guarantee that your investments won’t
suffer during times of market volatility, but it can improve the chances
that you won’t lose money in the long term, or that if you do, it won’t be
as much as if you weren’t diversified.
PORTFOLIO REVIEW
Once the present coronavirus (COVID-19) crisis has subsided and
market volatility has normalised, consider taking the opportunity to
review your portfolio. Bear in mind that future income levels expected
from the portfolio may have altered, for example, bond yields may have
changed in either direction depending on credit rating; while future
dividends from equities may be reduced at least temporarily, even if
historical equity yields have risen.
PENSION DRAWDOWN
There have been nearly twice as many people seeking pension drawdown
advice according to Unbiased, as pension withdrawals have reached a
new high in the wake of the coronavirus crisis. But those acting without
professional financial advice risk making some big mistakes. If your
pension fund has been diminished due to recent market events, only
time will help it recover – and taking money from an already depressed
investment reduces the potential for recovery in your portfolio. So be
careful how much you take out of your pot while it is still invested - or
consider suspending withdrawals.
PATIENT INVESTOR
If appropriate to your particular situation, reacting to short-term market
events by making dramatic portfolio changes makes it difficult to stay
on course to achieve your investment goals. While many investors feel
they have to do something during a market downturn, history shows
that the disciplined, patient investor will often be the one rewarded
when markets return to their upward path. It’s worth remembering that
reacting to a market decline by selling an investment guarantees a loss
that otherwise only existed on paper and being out of the market can
prevent you from participating in any gains when the markets bounce
back.
PROFESSIONAL FINANCIAL ADVICE
Ultimately, you should always have a well thought out plan when
investing. Receiving professional financial advice is an essential part of
this plan. It's not possible to forecast with any certainty another market
downturn, but we can say that the long-term evidence supports staying
in the market, rather than trying to time your entry and exit.
To find out more or to book your free financial review, please contact
us. You can also email me at: [email protected]
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