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By Wesleyan

A time to keep emotion out of your investment decisions

financial wellbeing
cost of living for dentists
4 min
Female dentist wearing glasses and mask treating patient

Michael Copeland, Dental Regional Manager at Wesleyan Financial Services, looks beyond the financial headlines and reminds us why it’s crucial to keep calm when investing through turbulent times…

Currently, you can’t avoid the headlines and the never-ending purporting of doom when it comes to the financial stability of UK citizens.

It’s understandable in turbulent times when the markets rise and fall that many investors will be unnerved to the point of considering 1) making changes to their portfolio or 2) pulling out of their investments entirely.

And yet, time and again experts typically say one thing – don’t respond to times of volatility with a knee-jerk reaction, prompted by emotion. This particularly goes for those investors who are either thinking of selling when there’s a large dip or buying in when markets are high.

Learn from the past

Dismissing emotions is easier said than done, but it’s crucial to remember the bigger picture in your investment strategy, alongside one of the key principles on which investments should be made – time in the market, not timing the market.

This is not the first time we have had to weather market volatility – in fact, you only have to look over the past fifty years to see that it is a challenge we have faced many times before. Think back to other big economic events, such as the burst of the dot-com bubble in 2000, the Iraq War in 2003, the financial crisis of 2007-08, and the recession of 2009 – the markets did eventually bounce back.

However, exactly when the markets will recover is anyone’s guess. That’s why investments should be for the long term. As a guideline, it is recommended not to invest unless you are willing to lock your money away for at least five years or more, as it allows your investment to ride out dips in the market due to economic events, in the hope of greater returns in the future.

Risk versus opportunity

As mentioned earlier, there can be a tendency among novice investors to sell during a market downturn and buy during market recovery.

There is another perspective to consider – turning that approach on its head.

Imagine going into a shop only to find out that the prices have increased from the previous week – how frustrated would you be, having to fork out more for the same items? Apply that scenario to the markets, and less experienced investors tend to have the opposite response – seeing it as a good thing when the market is booming and wanting to buy in at that point, despite it costing them more.

Then if we look at this from another angle when the figurative shop has a sale, shoppers tend to be happy to part with their money, but if markets are low investors tend to be tempted to withdraw from or delay starting their investments.

Investing when prices are high means that you have to hope they go even higher to see a return on your investment. Those who invest consistently over time will occasionally catch a market dip and subsequent recovery, which can provide potential for greater growth.

Balancing your immediate commitments against short- and long-term financial goals is key when it comes to your financial plan and risk appetite. For guidance, it may help ease your anxiety to develop your financial plan to include three separate pots:

  • An emergency fund - three months’ net income can be a good place to start
  • Short-term planned spending - for money you need within the next five years
  • Long-term financial goals - money that you can set aside for at least five years or more

Once this has been established, this can form the basis of your long-term investment plans.

The benefits of using a fund manager

It can be difficult and costly to invest on your own.

Having a fund manager in charge of your investments can provide some peace of mind, taking away some of the anxiety around market performance. They use their knowledge and experience to make important decisions about which assets to invest in, and they are able to devote considerably more time to analysing and researching the markets than ordinary investors.

At Wesleyan, the fund managers actively research the market and invest in stocks, bonds and commercial properties that they believe will deliver superior returns in the long term. They are supported in their work by a team of Investment Analysts and Socially Responsible Investment specialists.

Seek further support

Above all, if there is one piece of guidance I could give – remember that your investments are for the long term and checking on their performance multiple times a day is unlikely to do anything for you other than to cause further stress and anxiety.

If you are concerned about your investments and whether they are right for you, it can help to have a financial review with an expert to put them into perspective against your financial objectives.

Seeking advice will help you keep the right balance – staying informed while taking away emotional urges. Book a no-obligation financial review to speak with a Specialist Financial Adviser from Wesleyan Financial Services.

Remember, the value of investments and any income can go down as well as up and you may get back less than you invest.

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