As I am writing this article on 3 September 2015, the stock market has fallen nearly 900 points in the last three months, due to the troubles in China. For many of us, the memories of the 2008 stock market crash are very fresh in our minds. When the market falls, here are some points to consider:
Before you choose any investment, find out what happened to it during previous downturns. This will give you some idea of its volatility. Obviously, this doesn’t guarantee how your investment will behave in future, but it’s a good starting point.
During a downturn, think carefully before taking your funds out. This would include a switch of funds, transferring them elsewhere, surrendering your funds, taking an annuity, or any other action. This is because you could lose money while your investment is taken out of the market.
Example: If you decided to transfer an investment linked to the FTSE 100 and the funds were withdrawn from the market on 24 August 2015, they would be exiting when the market was valued at 5898.90. If you re-entered the market on 28 August, you would be buying back on a day it closed at nearly 6250. In just five days, you would have missed the market going up by a significant amount.
So when is a good time to invest?
Looking back, 24 August 2015 would have been better than 28 August 2015, but at the time you don’t know whether the market is going to go up or down. One way of reducing the risk to spread your investment over a given period, so you don’t invest all your funds on the same day.
At Monetary Solutions Ltd, you can book a free initial consultation about any financial matters, so please call us on 020 8655 8488.
The information in this article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.