Reasons to ignore the Great Fall of China

Reasons to ignore the Great Fall of ChinaWhat an exciting start to the week!

I’ve been busy overindulging on room service, enjoying a short honeymoon break with Becky at a hotel in the New Forest.

Meanwhile, global investment markets have prompted panic after what has been dubbed “The Great Fall of China”.

What a time to be a tabloid headline writer.

China experienced its worst day of trading since 2007, with the main stock market index in Shanghai falling by 8.5%.

Oil prices reached a six and a half year low of around $38 a barrel and stock markets globally also enjoyed a pretty sharp correction.

Sell everything, now! Or don’t. Probably don’t.

Because already today, things are looking a little better. Isn’t it funny how the investment markets go up and down like that.

The FTSE 100 in London closed up 3%, the CAC in Paris was up by 4.1% and the DAX in Germany was up by 5% today.

Markets in the US remain open, but look to be recovering the losses experienced yesterday.

Here are some of the reasons you should probably ignore The Great Fall of China.

Your investment portfolio is well diversified

Smart investors don’t put all of their eggs in one basket. They diversify.

I’ve no doubt that your portfolio is invested in equities which fell in value yesterday, but also the other main investment asset classes; fixed interest securities, property, even some cash.

Ignoring equities for a moment, what did the value of the gilts and investment grade corporate bonds do yesterday? They rose, right? I wonder why the tabloids didn’t report that…

You’re in this for the long-term

Successful investors don’t worry about the short-term, because they know investing is a long-term pursuit.

The success or otherwise of an investment strategy is measured in years, not months, and certainly not in days or hours.

How is the performance of your investment portfolio looking over the past three, five or ten years?

You have a Financial Planner

Why does this matter? Because it means the way in which your portfolio is invested takes account of how much risk you were prepared to take (your attitude to risk), how much risk you were capable of taking (your capacity for risk) and how much risk you need to take to meet your goals in life.

Your Financial Planner is also your behavioural coach, your critical friend when it comes to managing the emotional aspects of events like this.

They are the person to reassure you when market blips arise; and hopefully the person you thank when you look back on your decision to remain invested throughout a bout of market volatility.

You have enough in cash to cover short-term spending

Successful investors can afford to keep their portfolios invested during a market recovery and subsequent recovery, because they keep enough in cash to cover short-term needs.

This is especially relevant for pension investors using drawdown, where enough cash should be in place to avoid the need for selling investments in the short-term.

Your fund manager protected you from the worst of the downside

Around 90 per cent of retail investors in the UK still use actively managed investment funds, rather than index trackers.

At times like these, active fund management can come into its own and protect investors from the worst of the downside.

Unlike index trackers which simply track the market down during a market correction, actively managed funds can add some value for their additional cost.

You didn’t sell as a knee-jerk reaction to a market correction

Because what would have been the point of that?

Investment losses only become real losses when you crystallise them. Selling cheap and buying expensive sounds like the complete opposite of how successful investors act.

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About Martin Bamford

Martin Bamford is a Chartered Financial Planner, Certified Financial Planner (CFP) professional and published personal finance author. He works with elderly clients to provide advice on funding residential care fees, hosts the Informed Choice Podcast and is a keen ultra runner.
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  • Dee Searle

    Really helpful article. Thanks Martin. Of course, we sort of know that stuff but it’s good to be reassured!