Steady investing through rocky times: A beginner's guide

15 April 2020

Beginner’s guide to surviving stock market volatility


Investors are regularly warned that performance is not guaranteed. Although your money should – and normally does – grow faster than it would if it was left in a cash account paying paltry interest, buying into the stock market does mean accepting a degree of volatility and acknowledging that the value of your savings could dip at any point.

However, if you have recently started investing, nothing could have prepared you for the rollercoaster ride of recent weeks. In mid-February, the FTSE 100 index of leading companies was riding high at close to 7500 points. By 23 March, it had plummeted to just below 5000. Even more seasoned investors who have ridden through a crisis or two will have been staggered by their losses.

Adrian Lowcock, head of personal investing at Willis Owen, says: “The coronavirus has hit markets hard as the speed of the spread of the virus and the actions taken by governments around the world caught investors by surprise. The falls from the peaks have been between 30% and 40%, sometimes more, with individual companies falling much further. So if you are invested in shares, it is realistic to expect the value of your investments to have fallen at least 30%.”

Individual funds, will, of course, have varying aims and objectives, so will have behaved differently during the turbulence. However, it is reasonable to assume that if you are in a predominantly share-based investment you will have lost money.

Looking at how the markets have performed in recent weeks can certainly make for grim reading, says Laura Suter, personal finance analyst at investment platform AJ Bell.

“If you are in your 20s or 30s and relatively new to investing, this might be the first big market fall you have experienced, which will understandably be a bit scary.”

It is particularly frightening if you are close to your retirement and are likely to need your money imminently. However, do investors who are still relatively close to the beginning of their investment journey really need to panic?

One thing that investment experts agree on is that at times like these your heart must not rule your head.

“The main thing to do is to keep a cool head and to remind yourself why you are investing and that it is for the long term,” says Suter.

Even if you are a little shell-shocked by the market moves over the past month, there are some golden rules you can follow to help you through.

“The first is not to panic – the worst thing investors can do at a time like this is panic. If you are investing, you should be in it for the long term. Anyone who needs the money in less than five years should stick to cash for this very reason.

“The easiest thing you can do is limit the number of times you log in to your investment account, so you are not constantly watching every rise and fall in your portfolio. You should remind also yourself why you invested in these assets in the first place and stick to your guns,” Suter adds.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, agrees.

“None of us make our best decisions when we are in a cold sweat. Take a deep breath and focus on why you are investing, In the vast majority of cases, we are putting money aside for the long run,” she says.

“It means we have accepted that shares have their ups and downs in the shorter term, and we are prepared to face that in return for the fact they tend to do better than cash over longer periods. None of that has changed.”

Don’t be put off by one bad year on the stock market

History has proved that a great year can follow a disastrous one. In 1974, Britain was in recession, miners were striking, not to mention oil crises and the three-day week. Unsurprisingly, markets tanked by 55%. It paid to carry on investing though – in 1975, markets rallied and the FTSE All Share was up 155%.

What does history teach us about investing through downturns and recoveries?

Although selling up might provide a short-term salve, it could be disastrous for your long-term financial health.

Susie Hill, who runs Susan Hill Financial Planning in St Albans, says this can feel counter-intuitive.

“It is human nature to try to mend something when it is broken, to do something, but right now trying to ‘time the market’ and trade on short-term swings by selling into cash is the reserve of the high-risk investor.

“Short-term investors are prone to misjudging disorderly markets. There is a tendency to sell near to the bottom, then wait too long and buy back into the market at a higher price than they sold out. The issue is that timing the re-entry is impossible as market recoveries can be just as quick as the falls, and even a delay of a day or two can result in missing significant growth as stock prices recover.”

Coles agrees. “You may be tempted to sell up and think you can sit out of the market until things get better. The trouble is that in volatile times the only time you will know when things have got better is after they already have, in which case you have missed out on key growth. It is why they say that time in the market is so much more important than timing the market.”

Illustrating the point, on 24 March – the UK’s first full day of lockdown – the FTSE 100 rose by 9%. No pundit would put their neck on the line to say the volatility was over, but it does show that if you cash out you will miss any bounce back.

While selling out of a crash might be a bad idea, you should still pay your portfolio attention. It could be a good prompt to think about your wider investment strategy. 

Hill says: “What investors should be doing when this is over is to look at their portfolio to understand its risk profile and how well it was diversified.”

Suter adds: “Market shocks like this can be a good test of your risk tolerance. Often people overestimate how much risk they are willing to take, but when faced with the reality of market falls realise they have been a bit optimistic with how much they can tolerate.

“If that is the case, it could be a good idea to think about some lower-risk funds or investments you might want to make, or some very high-risk investments you might want to sell out of. But think about this carefully before you do, to make sure it is not just a knee-jerk reaction.”

How to invest safely: a beginner's guide to risk


You should also ensure your fund is sufficiently diversified, says Rebecca O’Keeffe, head of investment at interactive investor, Moneywise’s parent company.

“The fundamentals of investing never really change: at the heart of it all is the importance of diversification. This is never truer than in times of market stress.

“Diversification means that you are not exposed to too great a risk in any one part of the market,” she explains. “It typically involves investing in a mix of different assets and different geographic areas. What constitutes a well-diversified portfolio will, in part, depend on the kind of investor you are, your personal circumstances, objectives, needs and attitude to risk.”

Super low-risk investors will gravitate towards cash and fixed-interest investments such as corporate bonds and gilts, while more adventurous investors will brave higher-risk sectors such as emerging markets and smaller companies.

She adds: “In reality, most investors will probably lie somewhere between the two – in which case it is about getting the mix of different assets right. All of this underlines the importance of understanding the level of risk you are comfortable taking.

“Your risk appetite is the level of risk you can tolerate, not just emotionally but also relative to your financial circumstances and the length of your investment horizon.”

'It is Better to be a ‘Steady Eddie’ than a ‘Bad Timing Betty’


It is time in the market rather than timing the market that makes your money grow, according to research by Fidelity International*.

This shows that investors who regularly pay into the stock market and stay put, whatever markets do, are likely to be better off than wannabe traders who try to time the markets by investing at the bottom or selling at the top.

‘Steady Eddie’ started investing £1,000 in the FTSE All Share in 1990. In 2000, he increased that to £2,000, rising to £3,000 by 2010. By February 2020, his £60,000 investment had grown to £166,766.

‘Bad Timing Betty’ set aside the same amount of money to save as Eddie but only invested in the stock market when she was confident during cyclical market peaks. The rest of the time her savings were in cash. By February 2020, her savings were worth only £114,767 – more than £50,000 less than Steady Eddie.

‘Good Timing Gary’ was bold and only invested his money when the FTSE All Share was at its lowest. Despite his knack (or luck) for timing, his £60,000 contribution is still only worth £144,215 – some £20,000 less than Steady Eddie who remained invested throughout.

The periods of volatility Steady Eddie invested through included the Russian default crisis in 1998, the bursting of the Dot-com bubble in 1999 and the financial crisis of 2008.

*Returns are based on total return in GBP of the FTSE All Share, and returns from the Morningstar UK Savings 2500

Source: Fidelity International, January 2020

If you have previously only invested lump sums, you may also want to consider putting money away on a monthly basis, suggests Suter.

“Another option if you are feeling a bit nervy is to set up a regular investing plan, where you drip-feed a certain amount of money into the market every month, rather than putting a lump sum in at once. Doing this reduces the temptation to try to time markets and call the bottom of the market, but it also means your money is invested regularly without you having to worry about it.”

Suter adds: “Regular investing can also help to smooth out your returns, thanks to something called ‘pound cost averaging’. Because you are putting a regular amount in the stock market – regardless of market movements – you will help to smooth out your volatility.

“So-called pound-cost averaging means that when markets rise you are buying fewer shares or units in a fund and when they fall, you are buying more units when they are cheaper.”

Whether you sit tight or take the opportunity to review your portfolio, Lowcock says it is important to use the experience as an opportunity to learn and grow as an investor.

“Don’t make decisions on what has already happened: you cannot change the past and you cannot reverse any decisions you have already made. Learn from the experience and use that to make choices about the future.”

Happy birthday, Sipps

This year marks the 30th anniversary of self-invested pension plans (Sipps), which enable more enthusiastic investors to take charge of their own pension savings by selecting their investments and managing their pot themselves.

Analysis from AJ Bell has found that a basic-rate taxpayer, who started saving just £100 a month into the FTSE All Share in 1990 would now have a fund worth £155,249. The figure is testament to the power of investing little and often – irrespective of what is happening in the stock market.

Tom Selby, senior analyst at AJ Bell, says: “While the impact the Covid-19 pandemic is having on society is undoubtedly without precedent, double-digit falls in the value of blue-chip indices like the FTSE 100 over the short term are nothing new. 

“In fact, since Sipps were first created in 1990, we have seen three such periods – the Dot-com crash in 2001, the Great Financial crash in 2007-2008 and now the 2020 coronavirus crash.

“After the first two economic crises, share prices recovered and then some. So while retirement investors may be feeling the pain right now, history suggests stock markets should eventually bounce back. 

“Indeed, even those wearing heavy losses as a result of the coronavirus downturn could still have reaped the rewards of thinking long-term.”


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