'Wait and See' Attitude to Stockmarket Volatility Urged
'Wait and See' Attitude to Stockmarket Volatility Urged
Leading local investment advisor Stephen Hill is advising a ‘wait and see’ attitude in the aftermath of this week’s ‘Black Monday’ shares slump. And while serious investors have natural concerns since the FTSE 100 suffered its biggest ever one-day points drop since 9/11, taking the long term view is still the best policy.
The London market bounced back a bit yesterday to regain some of the losses but the advisor believes that further stock market fluctuations can still be expected over the short term.
“If banks start to restrict credit and consumers subsequently start to tighten their belts, then it will remove one of the main powers behind economic growth and financial markets,” explained Hill, who works closely with London analysts.
“Also, people's sense of personal wealth is closely tied to the value of their property; and as house prices have weakened, so too has consumer confidence. There is probably more bad news to come on this front in the short term, and we should expect further stock market volatility.”
But he stressed: “Sometimes doing nothing is the best policy as history shows the typical best strategy is to sit out periods of volatility.”
“If an investor's personal circumstances and investment goals are unaltered and they are still able to take a medium to long term view, then it is probably appropriate to 'sit tight' through any periods of uncertainty.”
Hill added that while it was understandable to be concerned about the value of your investments in volatile markets, such a situation can also work for the investor, “We recommend that investors should take a long-term view - typically five to ten years of more - when investing in the stockmarket. In this way, you allow your investment to grow, which should more than make up for the effects of any short-term stockmarket volatility.
“However, it is possible to make market volatility work for you. Regular investing, usually monthly, and phasing, drip feeding a lump sum into an investment over a number of months, can work to your advantage in volatile markets.
“The main benefit of investing regularly is known as 'pound-cost averaging'.
If the market does fall than you know that your next monthly investment will benefit from the lower price. Of course, in a rising market this will result in less shares being purchased but then your existing shares should be showing a profit.”
For more information: stephen.hill@investmentdecisions.co.uk
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