The good news of the first interest cut in four years from the Bank of England was followed by an unpleasant surprise this month.
There was a drop in the stock market, not just in the UK, where the FTSE fell 2% over the first weekend in August, but around the world.
At Continuum, we believe there is no reason to panic – the stock market simply displays this kind of volatility every so often. And crucially, the losses were soon being made back. But what went wrong – why does it matter to you – and what can you do about it?
What went wrong?
The old expression, “when America sneezes, the rest of the world catches a cold” still appears to be true.
In the US, shares in some of the tech giants that had reached stratospheric levels slumped after delivering weaker than expected earnings figures for the second quarter of the year with Amazon, Intel, Microsoft and Nvidia seeing some of the biggest falls.
A “triple whammy” of delayed US interest rate cuts, worse than expected US economic data, and disappointing figures from Silicon Valley – not to mention worries about the middle east and Ukraine – made investors wary.
The rest of the world certainly started to follow suit. Far East traders started selling sending Japan’s Nikkei index crashing more than 12% in its worst ever points loss and its biggest one-day collapse since Black Monday in October 1987.
Like the FTSE in London, Germany’s DAX Index and France’s CAC both fell by around 2% on the morning of August 5.
The key thing to note is that the day after the falls, the stock markets started to surge. The losses were starting to be made up, at least in part within days. The investors who really lost money were those who sold up in panic.
Why does it matter to you?
Investors will now be asking whether this was just a bout of summer jitters, a correction of an AI-led investment bubble, or a real crash.
Some seem to be reacting by moving away from riskier and more volatile assets such as company shares and Bitcoin to safer havens such as Government bonds. Others may see an opportunity to buy before stocks shoot back up.
But does it actually matter if you are not a professional investor, hedge fund manager or similar?
Unfortunately, yes. The stock market fall affects not just anyone with shares, but by every British worker with pension savings.
So what can you do about it?
What to do about stock market jitters may depend on your situation and your attitude to risk.
The first rule in a stock market panic is not to join the panickers. Selling up when a share value falls is likely to be expensive. The chances are that it will regain its value sooner or later, while selling when it has fallen will simply crystalise the loss.
If your investments are in solid businesses, and your investment strategy is sound, staying invested could be the simple answer. If you are more than 10 years away from retirement it is unlikely this market movement will impact your pension. There is ample time for it to recover.
Your portfolio is set up for the long-term and that investment case won’t have changed over this weekend. Trying to time the market – buy when stocks are at their lowest, and selling when they reach their peak – is almost impossible to do in practice. Time in the market – staying invested is for most people a more sound approach.
There might be two exceptions to this rule.
First, if you are planning to retire at some point in the near future and preserving wealth, rather than building it has become your priority, it might be time to move your investments into less volatile holdings.
Second, if you are finding the recent volatility too stressful, it might be time for you to get off the stock market rollercoaster, into assets which offer predictability rather than maximised returns.
Do you need to make changes?
You might not need to change your investment plans at all. You might want to find a bargain or two if you have spare funds. Or you might feel it’s time to reshape your investments to reduce the effects of volatility.
It may be worth speaking to your financial adviser about your investment or pension fund strategy and whether there are any changes you can make to help to boost your recovery, or even potentially benefit from any downturn.
Simply call us at Continuum for the help you need.
Global stocks plunge, bond prices rally as US data spooks | Reuters
Why has London’s stock market taken such a hammering? | Evening Standard
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 or retirement strategy, you should seek independent financial advice before embarking on any course of action.
The value and returns of an investment are not guaranteed, investors may lose some or all of their investment. When investing Capital is at risk.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. Pension savings are at risk of being eroded by inflation.
The Financial Conduct Authority does not regulate UK Government Securities
