With worldwide stock markets rising and falling dramatically on a daily basis, empty shelves at the shops, European countries shutting down and a seemingly dithering UK government afraid to make the wrong decision, all but the bravest are worried, and rightly so. This current health crisis feels different, mainly because nothing quite on this scale has happened previously and we have little to measure it against.
Nonetheless, we have had difficult times before and from a financial perspective, there are some simple rules which, when followed, should pay long term dividends. Here they are.
1: Don’t panic
History shows that markets move in cycles of rises (bull markets) and falls (bear markets). Panicking during a market downturn rarely pays dividends. Leave the worrying to the people managing your money, for they will know that tough times don’t last forever. After a sharp market downturn, there is usually a rally and when that happens, your fund manager should be ready to take advantage. Patience at such times is important and it’s probably best not to keep checking your investments every five minutes.
2: Reduce your expenditure but not your investments
Cut down on frivolous spending and save for the rainy day which may well be upon us. By frivolous, I mean holidays, eating out and unnecessary feel good shopping for clothes and shoes. Don’t however stop contributing to your pension or ISA. Whilst stock prices are low, your contributions will buy you additional units meaning you will get better value for money every-time you contribute – even though the face value of your investment may have dropped.
3: Opportunities exist
History shows that some of the best opportunities to make money are at times like these. Share prices are at record lows. Will that always be the case? Of course not. If you have the stomach or indeed the money to buy now and wait, you could do well as a result. Property as an investment on the other hand deserves a little more caution; especially in London, where there still seems to be a lack of supply. Nonetheless, if there is a need to buy property as somewhere to live as opposed to pure investment, the time to buy is now.
4: Don’t sell
You may have investments, a pension or a savings plan. Your most recent statement may show a poor result right now – most probably a negative return. Hold your nerve. Will worldwide markets forever remain in turmoil? Of course not. It may be hard to see the light at the end of the tunnel right now, however, long term, we’ll be looking back at the falls of today on a chart showing the rapid growth that followed soon afterwards. If you pull out now, you won’t participate in that growth.
5: Hang onto your job
This is probably the most important of all. Keep your head down, turn up on time, stay late if you can and get the job done to the best of your ability and be proactive. Be pleasant and positive. Make sure your employer is getting good value for money from you. If you are worried about your job, it may be worth setting buying an unemployment insurance policy which will pay your mortgage and associated expenses for up to 24 months if the worst were to happen. Speak to your independent financial adviser for details.
