There are lots of different political and global events that can cause uncertainty and have an impact on markets – Brexit, elections and the recent breakout of Coronavirus are some of the more recent examples.
We understand that people have an incredibly emotive attachment to their hard-earned money, and rightly so! We understand it can be very unsettling when markets dip, especially in times like this where we are hearing headlines about the ‘worst day since 2008’ [1] for the stock market.
So, we wanted to explore how our core principles of investment strategy and getting your financial foundations in place before investing can help to minimise the impact of these changing markets and support our investors in achieving their long-term investment goals.
Diversification
When we talk about diversification, we often refer to the phrase ‘don’t put all your eggs in one basket’.
When you diversify your investments, you’re spreading your money across several different types of assets, and we also diversify across geographical locations and industries too. This helps to minimise the risk involved.
Different assets, like equities, bonds and property, do not react in the same way to a market event – often when some investments fall in value others will rise. It’s often the same with markets across the globe or different industries such as technology or retail.
Diversification can’t protect you from losing money entirely, but it does help to manage and balance risk.
Regular investing
Although making a big lump sum upfront could boost returns as your money is in the market longer, ‘pound cost averaging’ highlights the benefits of making regular monthly contributions to your investment.
Regular contributions mean that some fund purchases will be made when the markets are up, and some when the markets are down, averaging out over time. This reduces the risk of trying to ‘time the market’ if you’re making a big one-off deposit.
There can be emotional benefits to investing on a monthly basis too.
The natural rise and fall you will see in the value of your investment returns will not be as harsh as when investing a large one off, lump sum. This may help reduce the emotional bias that can get in the way of effective and sensible investment decisions.[2]
Emotions and investing is something we often talk about. Money is incredibly emotive, but it’s important to stick to your plan and try and avoid making decisions due to fear, panic or excitement – we know it’s easier said than done!
Cash buffer
We recommend that our investors keep three months outgoings in accessible savings, to act as a cash buffer for life’s emergencies. Investing is for the medium to long term (at least 5 years), and so having a cash buffer to draw on will take some of the worry out of seeing your investments rise and fall in the short term.
Ongoing advice and support
We know that seeing the value of your investments fall can be worrying – especially for new investors. That’s why we think it’s so important to have access to help and support from real people!
We offer ongoing advice and appointments with our financial advisers at no extra cost.
If your circumstances change, or even if you just want to have a chat with one of our advisers for a bit of comfort, we’re here to tell you what’s best for you and your investments and answer any questions or worries you might have about your money.
You’re not alone – we’re here if you need us!
[2] barclays.co.uk
