What You Need to Know About Investing and Keeping Calm During a Panic
Investing is scary at the best of times. It's hardly surprising, then, that the 'rona has sent quite a few shivers down new and prospective investor's spines. We've had a surge of people asking us what to do about their investments and whether or not now was a good time to start investing.
But before we go on to that, a little bit of background:
The FTSE 100 - which is a list, known as an index, that measures the performance of the 100 largest companies in the UK - has just posted its ‘worst quarter since autumn 1987’ losing 24.8% of its value in the last three months (more here on The Guardian).
Why does this matter? Well, the FTSE - pronounced 'footsie', - is a sort of benchmark. The more people want to buy shares of a company, the higher up it will go up the index. When lots of people are investing in lots of shares, the FTSE will go up. When people are selling or not buying shares it will fall. When you hear about the “FTSE 100 crash”, it simply means that the value of the biggest UK listed companies is dropping.
The 'footsie’ is seen as a key indicator of the health of the British economy. So, when its overall value falls, it has an immediate impact on the value of your investments - whether this is your pension or ISA. This is because some of your investments are likely to be invested in UK shares that are listed on the FTSE.
Long story short, a stock market crash is, unsurprisingly, not good news. What, then, do we do about our existing and perspective investments? While there's no easy, one-size-fits-all answer, and we're certainly not certified financial advisors, here's what we think you should know about investing in a time of crisis.
if you're already investing
- Stop obsessively checking your investment accounts. Don’t stay glued to the financial press. Get away from your screen, turn off the news, and find something to do that will take your mind off the markets.
- Above all else, do not panic-sell your investments. Think about this time as though you're flying through turbulence - it's scary, but it will pass. Stock market volatility is part of investing.
- If you can afford to stay invested, then keep investing! You can manage the risk (to an extent) by having a diversified investment portfolio (aka not putting all your financial eggs in one basket).
- Keep a long-term view and try not to react emotionally. It’s painful, it's hard, but staying put through crises has historically benefited successful investors over the long term.
If you've been thinking about investing
- Investing during a market crash can feel crazy counterinutive. If you have no experience in investing, why on Earth would you start now? The thing is - and yes, you've probably read this a gazillion times before - it’s about time in the market—not timing the market.
- If you have the money to invest today, market volatility shouldn't put you off. It's your personal circumstances that should primarily dictate whether or not it’s a good time to invest.
- That being said - you should not be investing if you are currently unemployed, at risk of losing your job, struggling with your bills or mortgage, in debt or significantly eating into your emergency cash fund (as sadly so many of us are thanks to COVID). You need to take care of your basic, essential needs first before starting to invest.
- Also, keep in mind that the money you invest you have to be willing to part with for at least 5 years. Investing is about reaping the benefits in the long-term future.
The thing that all recessions have in common is that they end. Just as we will all enjoy a nice Aperol spritz (or 5) with our friends and family eventually, and the stock market will eventually be okay. We don't know when; it's impossible to tell. But we have been through wars, terrorist attacks, inflation, and a plethora of other awfulness. We've always endured and bounced back. Keep positive, stay invested (if you can), and stay safe.