Money
Managing your money
Stock market fluctuations 'inevitable'
Recent turbulence in the stock market will have spooked many investors but the bottom line is not to panic, according to experts
This may be easier said than done for savers watching helplessly as their money drains away. But selling when the market is low means crystallising losses.
"If you invest in equities, you have to accept that market ups and downs are inevitable," said Darius McDermott at Chelsea Financial Services.
"The nature of the stock market is that it rises and falls, which is why it is recommended only as a long-term savings vehicle. You have not lost money until you sell it. Panicking is the worst thing you can do."
The sharp fall in the FTSE 100 poses a harsh reminder that all investors should have a balanced portfolio to reduce risk and losses.
It's important create a shelter from some of the volatility by making sure a portfolio is not invested solely in equities, or over-exposed to them.
Having a diversified spread of assets that also include bonds, property and cash is recommended.
Investors have enjoyed three or four favourable years but experts are expecting a more difficult time in the near future. There are funds run by experienced fund managers who are positioned for more difficult market conditions. They have stocks and sectors that should outperform difficult markets. Alternatively, there are multi-asset funds which invest in a number of different asset classes, including equities, bonds, private equity, property, commodities, absolute return funds.
Another way of smoothing out market volatility is to pay a regular amount into a fund rather than a lump sum to take advantage of pound cost averaging.
Anna Bowes, from independent financial advisers AWD Chase de Vere, said: "This means that monthly payments buy more units when the market drops, which will be worth more when the market rises. The recent drop in the market means that those who already have such a plan in place are getting far more shares for their money right now."
Savers with spare cash might want to think about investing while the market is cheap, according to Bowes.
She added: "Successful equity investment has always been about fighting through short-term volatility to take advantage of long-term out-performance.
"Most experienced investors will regard the current volatility in the markets as a buying opportunity because you get stocks at a cheaper rate.
"The stock market is no place for rainy day cash that might be needed in an emergency. The current state of the market illustrates why, because anyone who needed to get their hands on some cash and sells now will make a considerable loss.
"If you are planning to access the cash in the near future, then go and see your financial adviser to discuss your options. But make sure you understand the consequences of selling at a loss."
Savers need to be able to leave their money where it is for a minimum of five years if they want to make any cash as historically, equities have out-performed cash investments over the longer-term.
Written by Holly Thomas
* The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.
