It doesn’t matter if you’re new to investing, or a veteran of the stock market, it can be unnerving or worrying to watch the value of your investments fall.
During volatility, or a stock market crash, it can be easy to give in to panic, follow the herd and sell your investments in order to minimise any further losses.
However, selling when the market is down is often the worst thing you can do; you’re simply making your losses real, or ‘crystallising’ them.
Sell-offs are an unavoidable part of investing, but they don’t last forever and previously the stock market has recovered strongly. That’s exactly what happened with the 2008 financial crisis – panicked investors who sold their investments missed out on the dramatic recovery that followed the crash.
Some brave investors even use the opportunities created by market sell-offs to buy stocks at a lower price.
Make a plan and stick to it
There are several ways you can help yourself to avoid panic-selling.
For a start, create an investment plan, based on your objectives and risk tolerance, and stick to it. This means not letting your emotions cloud your decisions.
You can also lower the risks to your portfolio by investing in a range of assets across different sectors and geographical regions.
A diversified portfolio doesn’t guarantee to shield you from losses, but it does help lower your risk as the values of different types of assets don’t always move in the same direction.
If you’re unsure how to go about creating a diversified portfolio, then speak to an NFU Mutual financial adviser.
Also, don’t try and time the market. It can help to sign up to a regular investment plan, where you drip-feed money into your investments every month, and benefit from pound-cost averaging - a technique which can help reduce risk when markets are volatile
Finally, plan for the long term. As the old investment saying goes, “time in the market is more important than timing the market”.
It’s important to remember that past performance is not a guide to the future and that the value of investments can go down and you may get back less than invested.