The past 6 months have seen some of the most volatile stock markets fluctuations for over 30 years and this together with reducing property prices for commercial property funds, has made life difficult for investors. There is a tendency in this type of market for everyone to panic and “run for the door” and sell their holdings at huge losses. This is the worse thing that investors can do as they should hold onto their investments and if they have money in the bank, buy more while prices are low. Warren Buffet, the so called “Sage of Omaha” and one of the world’s most successful investors feels that “we should be greedy when others are fearful and fearful when others are greedy”. Having said that if you have a well thought out investment strategy with a well diversified portfolio then this will serve you well for the future. We do have market corrections and that is a feature of both stock markets and property markets over the years and I emphasise to my own clients that statistically one out of every four years will be a bad year and markets will fall. It just so happens that we are in that 12 month period at the moment. We have to constantly remind ourselves that whilst we have short term fluctuations in markets the trend is upwards.
The more cautious may think they would rather just stick the money under the bed but you must remember that inflation will continue to eat away at your money’s real value. For example, the government’s target of 2% pa for consumer price inflation means that your pound would only be worth 60 pence after 25 years.
The Retail Prices Index is actually higher than this and is running over 4% pa as I write, which means it would half the value for money in around 17 years.
Investors should therefore be brave enough to stick with the strategies their advisors have put together for them. If they wish to reappraise the risk that they are taking, now might be a good time to do so because if you feel uncomfortable with the recent losses it means that you may have thought you were comfortable with a higher risk tolerance that subsequently proves that you are not. Having the correct asset allocation for your risk profile in a multi asset portfolio and having that portfolio rebalanced at regular intervals and to take the profit from it and buy cheaper assets is the only way to have a investment portfolio that will grow in the medium to long term without radically changing the original asset allocation. My message is sit tight, don’t run for the door, as that is the surest way you can lose money from the funds you have already built up.