10 tips on avoiding panic in turbulent times
Here are our suggestions on ten things you should consider in the event of stock market volatility.
1. Stay calm! Investment decisions made in haste and under stress are rarely good ones.
2. Think about rebalancing your portfolio to make sure your investments remain in line with your original objectives and risk tolerance. You can read more about rebalancing here
3. It’s always worth remembering why you chose to invest in the first place. Shares are regarded as a long term (5 years+) investment. Assets such as shares and property have been shown to produce relatively positive returns over the long term, although their prices can be volatile over short periods. The fundamental reasons for your original decision to invest may not have changed.
4. You may not know for certain that share prices have hit the bottom yet, but you do know that they are X% cheaper than last week/month/year.
5. Put the market fall into context. A ‘market correction’ usually happens after a sustained period of growth – from which you may have benefitted.
6. Whatever you decide to do, don’t be panicked into stopping saving altogether unless you can’t afford to.
7. If you need to take income, think about all the potential sources you could take it from. Bonds, property and cash savings may be options you could explore while giving your shares time for potential recovery.
8. As you look ahead, make sure you’re as prepared as you can be for future dips in the market. To help ride out volatile situations, diversifying your portfolio so that you have a good spread of investments across the main asset classes (shares, fixed income, cash and property) could help with this. If one of the assets in your portfolio does badly, only part of your overall wealth will be affected.
9. The return on shares and share-based funds comes from two sources: the capital return and the income or dividend return. Drawing only the income or dividends from these investments means the capital remains invested, so any future recovery (or movement in the opposite direction) will influence its value.
10. Creating a rainy day fund is something to think seriously about – especially if you have benefitted from a long bull run (upward movement) in the value of shares. Some people choose to hold at least a year’s worth of income in cash – although not everyone will be in a position to do this.
Unsure whether investing is right for you? Aviva can help by providing further information on investment and how it differs from saving. Visit Saving for the future.