Investing Money in Falling Markets

February 24, 2022

It’s all too easy to fall into the trap of being pessimistic when you look at the value of your share portfolio and think about turning it into cash – to stop any further falls, but in hindsight you will see that it is a knee jerk reaction – and you shouldn’t do this.

Having been through a couple of big market falls before, you do need to keep your nerve and hold tight – as this is the best reaction. I remember reading a while ago about an analysis that a large Scottish insurer did on the stock-market, and in general they found that all the growth in a full year came in something like 5 – to 7 working days. So, if you were in the market on those days you could benefit, and if you weren’t – then you would lose out. All the remaining days the FTSE would go up and down and basically stay in the same place. This fact surprised even me, but it was statistically proven.

Now taking this into account, if someone is checking their portfolio these days, they could get very pessimistic indeed with looking at values that only head South. It’s very depressing and you feel that you really NEED to do something, so you need a lot of willpower to get rid of those feelings and stick to the facts.

FACT 1 If you switch funds to try and improve things, how can you do that with any degree of accuracy when all funds are falling – because you may very well switch money into something that is falling faster than you think.

FACT 2 If your investment process is robust enough and you are sitting in investment funds that have served you well in the past, if you moved out of them at any time, then you might very well miss any resurgence – as this only happens in 5 – 7 working days a year.

FACT 3 You also need to remember that buying and selling investment funds today is anything but instantaneous and in the vast majority of cases it could take 3 to 4 days to finalise purchases. Most people will probably think that you can press a button and abracadabra it all happens. No, it doesn’t. So, by the time you react to something in the market – it could all go by you in a flash.

So, remember – when in doubt DON’T.

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