How to react to stock market wobbles

For investors, stock market rollercoasters are both a part of life and a cause of anxiety.

The recent headlines surrounding the FTSE 100 index taking a tumble might have kept you up at night. But they shouldn’t have.

First, let’s look at what happened:

Across the world, many markets have seen a strong and steady period of growth. The profits gained from that period triggered many large investors to begin selling their shares to claim a profit. Unfortunately, those actions have ignited a chain of panic-selling by other investors.

With so many people pulling out of the market at once, value has dropped: so too have the markets themselves.

Should you be worried?

Not particularly.

Seeing others panic does not necessarily mean that you need to follow suit. As Warren Buffett famously said:

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

So, how should you react when the stock market turbulence hits?

1. Don’t make reactive decisions

Instead of reacting to the volatile nature of the markets (or the sensationalist headlines) with panic or knee-jerk decisions, we recommend standing back, observing the bigger picture and taking a calm and considered approach.

2. Stick to your investment plan

Rarely, if ever, should short-term stock market volatility cause you to change your long-term financial plan, especially if your goals and aspirations remain unchanged. Fluctuations are pretty much guaranteed in stock markets, and your plan should be designed to handle them.

3. Remember the fundamentals of investing

These three principles should be present when considering your investment strategy:

Investing is a long-term plan: Over the long-term, investors have enjoyed attractive real-returns from the world’s stock markets. That’s not something we’ve not been able to say about deposit accounts for many years, which currently guarantee a real-terms loss.

‘Wobbles’ happen: Volatility, as we have seen recently, is to be expected from time to time. It should not be a cause for panic. Just as markets go up, they also come down. The best course of action is to take a step back and look at the bigger picture.

You can’t time the market: Looking for the optimal moment to invest or withdraw capital has proven to be almost impossible, there is no magic formula to guarantee certain returns or growth. You take the risk of losing money whenever you decide to invest, so never trust anyone who makes promises they can’t uphold.

4. Talk to your adviser

Your adviser or investment manager will be able to calm any nerves you have about short-term volatility and will be able to let you know if your plan is equipped to handle it. Whilst drastic changes might shed some light on the adjustments you need to make, it is always worth consulting an adviser before you make changes that you later regret.

Now is the time for calm heads and clear thinking, with a focus on the long-term. Deviating from your chosen course is not what any adviser should be recommending.

It’s only natural that you may have some concerns. To discuss them, contact us on 02380 633636 or request a call back by clicking here.