At Continuum, we aim to help people make the most of their money with investments – and when the financial outlook becomes unsettled, we want to be there to help.
Right now, things are looking confused. At home, Brexit is giving markets the jitters – while around the world, the latest battle in the US/China trade war looks ready to be launched. Quite what will happen over the next few months is impossible to predict, and in uncertain times like these, investing can be stressful. Here is our brief look at how you can avoid making some key mistakes with your investments.
Mistake one – trying to time the market
Many new investors think that investing is about trying to time the stock market – to buy when stocks are cheap and sell when they have reached their peak.
The fact is, even professionals struggle to do this, because in the real world, there is no way of telling that a particular stock is ready to move in a particular direction. That stock that looks like a bargain could as easily fall further as go back up. Any record valuation could simply be a pause before the real peak – or before falling into a precipice.
None of us knows what tomorrow may hold, and even in normal times, the stock market is unpredictable. At times like these, with the economic giants squaring up against each other, it can be very volatile, and prices can rise or fall rapidly. Unless you have a crystal ball, you simply can’t see what comes next for any particular stock.
One option is simply to hold your nerve. Once you have assembled your portfolio, you should consider sticking to it. Prices will rise and fall in the short term but in the long term they have the potential to deliver steady growth.
Mistake two – Panicking when things look difficult
So for example, in the last three month of 2018, there were stock market falls. Global stocks suffered their worst quarterly falls in seven years at the end of 2018 amid global economic concerns, driven by the trade tensions between the US and China.
But markets started to recover at the beginning of this year, and they can do so very quickly. So those who bailed out in a panic in late 2018 will have probably sold at the bottom and lost out on the recovery.
Pulling out of the stock market when it falls and moving into lower-risk assets or cashing in equity – based investments simply means the losses – which are only on paper – become real and means missing out on the chance of potentially making money back when the market recovers.
Making short term changes to what should be long-term investment plans can be a recipe for losing value – not protecting it.
Mistake three. Taking a short-term view
Even if you do avoid panics when prices fall, it is still too easy to take a short-term view. The golden rule of investing is that it is for the long term, at least five years and ideally 10 years or more. It means your investments have time to smooth out the short-term ups and downs and potentially deliver a positive return. The longer your investment time horizon, the simpler it can be. If you are putting money away for 30 or 40 years, even big stock market corrections become buying opportunities rather than time to bail out – plus you benefit from compound interest.
If you can’t invest for the long-term perhaps the security of saving in a deposit account might be a better option.
Mistake four. Expecting too much
Investing can build your money given enough time. But it rarely works miracles, and in recent years the returns seem to be less exciting than they once were. Back in the 1980s, interest rates were high, and returns from the stock market could beat them. Investors born in the 1960s and 70s may still expect returns of 10% or more per annum. In fact, in the last five years global stocks, as measured by the MSCI World Index, have returned 6.7% annually. It is not as exciting as it used to be – but the return from stock markets overall still has the potential to beat that available from savings.
Mistake five. Not getting help
Finally, the biggest mistake of all is not getting help. All investing comes with risk, and the greater the potential for profit, the greater the potential for loss. Understanding the risk of investments can require expert knowledge.
Fortunately, it is easy to get an expert to help with building and managing your portfolio. At Continuum we can offer the help and advice you need, whatever stage of your investment journey you have reached.
Simply call us for the help you need.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
Equity investments do not afford the same capital security as deposit accounts.