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Making the most of tough times
Sound strategies for investing during a financial crisis
Markets have fallen to their lowest level in three months, just as investors are getting ready to place their £10,200 stocks and shares Isa allowance before the April 5 deadline. Perhaps indeed there’s truth in the adage “In adverstity lies opportunity”.
While the volatile market has caused some investors to run from riskier assets, such as equities and commodities, we believe that the long term positive returns from UK shares augurs well for the future. So here we outline some strategies to help you cope in a crisis.
All or nothing?
Should you invest all your Isa allowance as lump sum, or drip feed money into equities in order to reduce risk? The answer to this depends on your wider strategy. If the market rises, as it has done historically, a lump sum will produce better gains over a long time period than regular investments. Whereas, over shorter periods of around three years, regular saving has tended to produce marginally better results.
In these volatile times it is important to remain calm. Short term moves to get out at the bottom of a market mean you can miss out on significant growth over the longer term.
Spread it around
If you are a long tern investor, it is almost inevitable that you will experience a crisis at some point. So it makes sense to spread your investments over a variety of classes of assets in order to lessen the risk. Whether you’re a cautious or an adventurous investor, we would urge you to seek advice as to what the best mix of UK and overseas equities would be to suit your investment style and return objectives.
Good as Gold?
As gold is already very highly priced, we would advocate caution before buying into an asset that has performed so well over an extended time period. Indeed, following the recent earthquake and tsunami in Japan, we have seen the price of gold tumble, as investors have moved into cash.
If you’re looking to increase your exposure to markets, the recent falls mean there are plenty of opportunities to grab out there. For example, the emerging markets are down as much as 15% since the start of the year and offer attractive opportunities.
Chartered Financial Planner