If you’ve kept an eye on the business pages this year you may have noticed something unusual – the FTSE 100 has closed the day at an unending series of highs – 14 days so far – and counting.
There are multiple reasons for this, including the weakening pound, which makes for higher profits for companies that take earnings from overseas, better-than-expected economic data from the UK, and overseas investors who panicked and sold post-Brexit starting to rebalance their holdings in light of these improvements.
And, as always, trailing after this, market sentiment and momentum investors, who abide by the rule that ‘the trend is your friend’ and want to snap up shares while they’re red-hot and in demand.
What goes up must come down
But it goes without saying that things will drop eventually – after all, it’s happened before, and while ‘past performance is not an indicator of future outcomes’ when it comes to making profit, it often is when losing money.
Since December 1999, the FTSE 100 has had three major corrections – when shares tumble across the board after a somewhat overheated run – and the average fall in these three situations was 40%.
What should you do?
This is a tough question and it depends on how long you’re going to be holding onto your portfolio for. If all of your savings are in stocks and shares and you’re going to need the money soon, there may be no better time than now to take some profit – but don’t make any extravagant moves as timing the market is really hard.
Here are some broad tips that may help:
- Don’t buy in to market sentiment – all of the excitement and hype could lead you to taking more risk than you usually would, which will leave you red-faced if the bottom does fall out. Be true to your investing self.
- Keep your end goal in sight – if you’re investing years from retirement, you have to accept that you’ll experience market cycles. Don’t panic if you’ve got time on your side.
- Be diversified – you don’t want your entire life savings to be at the mercy of just one market or company. Diversify your portfolio using multi-asset funds.
- Plan ahead – As Adrian Lowcock, investment director of Architas says: “Just because the FTSE 100 has reached new all-time highs does not mean that a crash is imminent, however it is often a good idea to hope for the best and plan for the worst.”
You could also consider absolute return funds, which aim to rise above any market conditions to give more than you put back in.