Kingston-based Holland Hahn & Wills are expert financial planners who have been providing financial advice to area and surrounding residents for over 30 years.
Katie Lovatt, head of marketing and operations at HH&W’s, focused her latest blog on tips to keep in mind when investments lose value. Read on for his top tips for protecting your finances in such a situation.
In recent articles I’ve talked about How to Mislead Your Investment Returns and How to Guarantee Your Investment Success, but today I want to focus on one key aspect: what to do when the value of your investments decrease ?
And periodically they will.
Markets fall for different reasons; however, uncertainty is still a major factor. Issues such as health issues (e.g. the recent global pandemic), inflation issues, political upheavals, etc., all cause price changes. Political and economic commentators like to have their say and, of course, bad news sells better than good news.
Here are my main takeaways on declining investment:
- The Three Buckets – Be sure to divide your money into cash, fixed interest, and stocks (aka stocks), and always keep enough money for a rainy day (the amount is based on individual preference, but a good rule of thumb is two years income).
- Diversify your equity investments globally – This reduces individual company risk and individual country risk.
- If you’re not an investment guru, choose low-cost, well-diversified funds – at Holland Hahn & Wills we prefer a passive fund management approach over an active one, but whatever your choices, costs matter.
- We live in a capital market economy, which means that when we buy shares in companies, and therefore participate in their risk, we should receive a return (also called a premium) for taking that risk, but we don’t know exactly when? After all, if there was no return to achieve, there would be no point in investing.
- Time in market, not market timing – this is basically the same advice as above, statistics show us that if you miss the best days in the stock market, you are missing a significant percentage of your return, because the Markets do not rise (or fall) in a predictable or linear fashion.
- Don’t follow the crowd – behavioral finance indicates that we the human race show strong herding instincts (it’s not just sheep), as a group many investors buy high and sell low. Do not do that.
- Sit firmly on your hands – what I mean by that is ‘don’t panic’ when the markets fall, there is plenty of evidence that shows you will make a viable return over the long term. A buy and hold strategy might be considered boring, but it works.
At Holland Hahn & Wills, we will never recommend that you rush into financial decisions. We do not handle customer money and all referrals are made via secure messaging or password protected emails.
If you would like to find out more about how our financial planning process can help you, or if you would like a second opinion on your own investment planning or strategy, please contact us on 020 8943 9229 or visit us at address www.hhw-uk.com.
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