As markets constantly fluctuate, it’s understandable why clients come to us with concern and distress. The market can be confusing and hard to predict. We want to explain a bit more about market uncertainty and bring some reassurance.
Rainy Day Savings
You cannot begin discussing investing or saving for the long term unless you have the security that if something happens, you have liquidity. In this case, liquidity is cash in the form of money in your bank account/post office. The last thing you want is to dip into your portfolio when it has dropped in value to pay for something which should have come from your rainy-day savings. For instance, a sky-high energy bill in January should be funded by ‘rainy day’ savings. That is why they exist after all. For this reason, your savings should be in a zero-risk entity and nowhere near the investment markets.
The key is to ensure that everything else is in the market. Why? You simply don’t need it right now. You know your rainy day money is in a safe place so you don’t have to worry about the day-to-day performance of your investment.
Things to focus on:
- Your end goal.
- How much you can afford to invest today?
- What are you hoping to fund?
- When is that goal likely to materialize?
- How long will that be in the future?
If the time horizon happens to be 5-10 years away, then the daily movements aren’t as important as you might think.
Remember to trust yourself. Of course, from time to time, we are faced with situations which may disrupt our financial plans, for example, employment or health. If you are worried about your employment status, then planning is key. In this instance, you may need a longer buffer.
Generally, we recommend you have six months of take-home pay in cash and get everything else into the market, but in this case, we may recommend a 12-month buffer.
We understand that when faced with declining portfolio values, it is a natural instinct to want to react and protect your investments from further market declines. But the short answer to this question is to act calmly and rationally. Nothing good will come from acting rashly. Try to stay cool-headed and focus on your time horizon during volatility and trust the process. Market timing can have some devasting consequences.
Embrace The Ups And Downs
Another important thing to note is to invest regularly during good times and bad times. Avoid moving everything into stocks at the hint of good news — or everything into cash following bad news. Try to embrace a down market instead of fearing it. View it as an opportunity to buy shares at potentially lower prices. Aim to stay in the market at all times because jumping in and out will only harm your investments.
One of the main things to remember is resilience. If you are feeling unsure, build up a larger rainy day fund. The last thing you want to do is panic and worry. The best decisions always come when you are calm. That is why we tell clients to sit down and really assess the situation. Is it worth the panic? 9 times out of 10, it isn’t. Why would you worry about that fund when you currently have a pot of money at your disposal? If you still have access to that pot, then you shouldn’t have a reason to worry.
Here are the key things to remember when dealing with uncertain times:
- Stay calm, and don’t act impulsively
- Try to invest regularly in both good and bad times
- Focus on the time horizon, and stay future thinking
- Avoid jumping in and out of the market
- Stay informed and resilient
- Get professional advice if needed
For more investment advice, chat with one of our investment advisors. Get in touch with us today to make smart investment decisions.
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