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Staying strong when markets are weak

Staying strong when markets are weak


By Martin Lawrence, Investment Manager at Wesleyan

If you can keep your head when all around you are losing theirs, to paraphrase Rudyard Kipling, then you'll be a wise investor. In today's climate of political and economic uncertainty our customers often ask if now is the right time to have their money invested in the stock markets.

Some spend hours reviewing market activity and trying to predict when the best time would be to move their investments to a safer home. So called "timing the market" is rarely successful however and a more sensible strategy might be to stay in the market.

Investors who don't require early access to their money could find that keeping their nerve and their exposure to equities when markets fall is a more profitable approach. Riding out the peaks and troughs over the long-term is more likely to provide higher returns overall as our analysis shows.

The effect of cashing in early

We've looked at data* that shows someone investing £10,000 in the UK stockmarket in 1997 would have seen their investment more than treble to £32,000 in 2017 if they left it untouched over that time.

This 20-year period encompasses the dot.com crash in 2000, the 2003 recession and the 2007/08 credit crunch so it would have been tempting at many points to divert money into a safer home with a plan to re-invest at a later date.

Had that happened the investor would have found themselves in a less profitable position as it is likely they would have missed out on the "best days" in the market. These best days occur typically when the market is recovering from a nasty drop.

Our analysis shows that missing out on just five of the best days in the UK stockmarket would have seen that £10,000 investment grow to just £22,000. 

Looking at the impact of missing out on the 10 best days the investment would be down to £17,000 meaning the investor would be £15,000 worse off than if they kept their money invested over the full period.

*Data source: Thomson Reuters Datastream based on historic performance of the UK Equities Market 30 September 1997 to 30 September 2017

The good days always follow the bad

Although these figures provide us with estimations only, and profit and loss is determined on a case-by-case basis, they provide some context on the value of a long-term approach to investing.

If you need access to your capital within the next five years and don't have the luxury of a long-term horizon, now may not be the best time to invest.

For example, if you're investing for your retirement income and need access to that within the next five years, you might want to consider a less risky fund.

Consider a With Profits fund

For anyone wanting access to equity markets but uncomfortable with weathering the roller coaster ride of the markets, with profits products may be a good alternative. 

This is a type of investment fund that spreads capital across a number of asset classes, with the aim of softening sharp rises and falls by smoothing returns.

It aims to provide a bonus that increases with the value of the fund over time. You should check the asset allocation of a  with profits fund to ensure it has good exposure to equities as this will allow for better returns over the years.

Take advice

As ever, each financial situation is unique and there's no one-size-fits-all approach. Your financial situation and the length of time you are looking to invest for are crucial.

If you are in a position to leave your money invested for the long-term then history shows that equity markets will over time provide better returns than cash or bonds.

And with interest rates at record lows and inflation on the increase, leaving money in cash could see the value of your investment diminish in real terms.

If in doubt, speak to a financial consultant who can give you specialist advice on how to manage your money.

Wesleyan provides specialist financial advice and solutions to professionals including doctors, dentists, lawyers and teachers and can provide guidance on reviewing your finances.

Past performance is not a reliable guide to future performance and the value of your investment can go down as well as up, so you could get back less than you have invested

This article is for guidance only and does not represent financial advice.

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