The last time markets saw such a uniform fall was on the eve of Covid-19 global lockdown in March 2020. Drops were so significant that the New York Stock Exchange suspended trading at several instances during the affected days, although today’s falls are unlikely to cause a repeat emergence of such “circuit-breakers”.
However, the Covid-19 market collapse was a unique event from which markets rebounded quicker than any other downturn in history, making that bear market unreliable as a roadmap for today’s.
So what can you do to protect your money? Telegraph Money takes a look at how to shield your pension and investments, while making the most of a potential opportunity.
What to do during the sell-off
Stay invested
If you have a reasonable time horizon and well-diversified portfolio, the last thing you should do when the market crashes is panic sell with the herd.
This crystallises losses, and risks selling at the bottom of the market. You will then have to buy back in at a higher price later on and it could significantly impact your investment returns.
Investors in thematic – sector or industry focused – funds lost more than two thirds of their total returns because of poorly timed buys and sells, according to a report from financial research house Morningstar.
As such, most investors would achieve better outcomes by being less reactive and adopting a more patient buy-and-hold approach.
Ed Monk, associate director at Fidelity International, explained: “Sharp falls for markets are never easy to handle but making hasty decisions with your investment can often compound the problem. Short-term losses are part of investing and cannot be avoided completely – it’s how you handle them that counts.”
Ask whether any decision you make fits with your long-term strategy and goals, or if it’s simply to satisfy yourself emotionally in the short term. While it is prudent to remain informed, prise yourself away from 24-hour news coverage.
Remember why you bought a share or fund in the first place. Has that reason fundamentally changed? Has the ability of a company to sell its product or service been damaged?
The answer, in most cases, will be no.
Buy
However, being patient doesn’t necessarily mean standing still. There can be opportunities during sell-offs.
For existing investments, if the investment thesis remains but share or unit prices have fallen, take the opportunity to buy more.
This is also the time to deploy your buy list, to snap up desirable assets at discounted prices.
Just as timing the start of a crash is practically impossible, so too is timing the bottom.
Instead of buying all at once, spread your investments over time to average out the price you pay. Most investment shops offer a regular investment service to do this automatically.
When share prices fall en masse due to panic sellers dumping their stock, businesses with desirable attributes, such as steady earnings growth and a history of reliably growing payouts, tend to be unfairly devalued.
Keeping a list of target shares or funds to buy in these types of events will help you take advantage and give you more security in your choices.
