While it can be tempting to make quick decisions during periods of economic turbulence, making panicked or hasty choices when it comes to your investments may result in incurring unnecessary losses. Here, George Square Financial Management provides some guidance on investing in an economic downturn and explains why it is important to stay level-headed.
Keeping calm in a crisis
With the markets responding positively to the robust government measures put in place to help the UK economy withstand the COVID-19 pandemic, now is not the time to panic when it comes to your investments. Withdrawing perfectly good investments when there is a dip in the market may well result in losses being incurred unnecessarily. Short term factors may distort true market valuations; remember that investments are for the long term, and history and experience have taught us that the markets will correct themselves in due course.
Diversify to minimise risk
There may be periods in which some of your investments are not performing well. It’s therefore important that, should this occur, you have other holdings to help offset the decline. Diversifying your portfolio is one of the most important principles of investing. If your portfolio contains a varied selection of asset classes and is spread across a number of regions, each element can perform differently at different times. This helps to compensate for any unexpected fluctuations in a particular market and ultimately minimises risk of capital loss to your investment portfolio.
Is now the time to start an investment?
Stock market corrections can provide an excellent opportunity to make your money go further. The value of stocks and shares are lower than usual at the moment as a result of the COVID-19 pandemic and are more likely to increase as markets recover. If the equity market is falling across the board, it provides a great opportunity to pick up quality stocks at relatively cheap prices. Read some of our practical tips on investing in tough times here.
Seeking professional advice
The investment market can be a complex place, but this doesn’t mean it should be avoided. It can provide a great opportunity to grow your finances. Making sure that you plan your investment portfolio properly at the outset, with the help of an expert, is by far the best way to prepare for and navigate through periods of economic downturn.
An independent financial adviser can help you to better understand the diverse range of investment products available to you, as well as look at more tax efficient or cost-effective strategies.
For further guidance on investing in an economic downturn, please get in touch with one of our experienced independent financial advisers.