How to hold your nerve during stock market turbulence

When turbulence hits the stock market, it can be easy for investors to panic and make decisions they might regret in the long term.

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Newspaper and television reports of market sell-offs can make even the most level headed of people feel nervous about their portfolio. But smart investors should use this opportunity to reassess their investing goals and make informed choices.

Remember they say the value of your investment may go down as well as up, so don’t panic if this happens. It’s possible you could get back less than you invested depending when you take your money out. But riding out these market fluctuations is part and parcel of investing.

Think long term

The best way to settle your nerves is to think about why you are investing in the first place. Investments are normally better when they’re part of a plan to meet a long term goal.

Is your plan to use your investment for a property deposit? Perhaps you’re setting some extra cash aside for retirement? Or maybe you have opened an account for your children or grandchildren?

Each of these should be considered a long-term aim. You should look at your investment on a long term basis of about five years or more.

Remember that investments tend to outperform cash over a longer period. Look past any short-term wobbles that may have occurred in the last few weeks and to the future.

Opportunities arise

A stock market correction can present a good opportunity for eagle-eyed investors. Remember that during a stock market wobble many companies and funds across a variety of sectors will see their values fall, but this doesn’t necessarily make them a bad investment.

If prices are relatively cheap then there may be bargains to be had. Try thinking of specific sectors you like and scour the market for value. Perhaps consider alternative markets to invest in, such as art, classic cars or the ethical sector. If you choose to invest in individual firms as well as funds, see if you can find any companies that you believe are undervalued.

If you already have a stake in a company this could be a good time to increase your holdings if the fundamental reasons why you like the firm remain strong. The same logic applies to any funds you may hold. If prices fall it may be a good time to increase your holding.

This is all dependent on you having the money to do so. If you’re unsure about your investments, seek guidance from a professional financial adviser.

Check your portfolio

As well as looking for new investments, a downturn is a good time to check whether your existing portfolio still suits your needs.

A common mistake made by investors is to sell at the bottom of a market, taking losses on your investment while giving up any potential future gains. Try not to panic and sell your holdings if you feel they could recover in the long term.

However, you should look to make changes if your priorities have changed. For example, if you’re getting closer to your retirement age, you may wish to sell some of your more risky investments and hold more money in cash or companies and funds you perceive to be safer.

Also make sure that your investments are held in the most tax efficient way. If your investments are held within a standard investment account, consider a stocks and shares ISA instead. Any gains you receive should be tax-free. However tax rules may change in the future so keep abreast of them. And be aware that the value of your investments could affect means tested benefits.

Whenever there is a stock market slump or uncertainty about the future, make sure you stick to the basics and keep looking towards the long term. If you feel like selling, take a step back and look at the fundamentals. These simple steps should help you keep your nerve and invest in an informed way.


Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. The opinions expressed within this blog are those of the author and not necessarily of OneFamily.