Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
It takes a lot to do nothing sometimes. That sounds rather counter-intuitive but there are times in life when avoiding the temptation to react, tinker or interfere with something can pay dividends later.
Take DIY for example. While the nation may have embraced home improvements during lockdown, I’ve not joined the party. I hold on to my dad’s words of wisdom when it comes to DIY which is to remember “one job begets another.”
As a result, my home is full of uncompleted projects. I have learned that once you knock that nail in the wall and witness the plaster around it cracking, you already know another job is waiting in the wings. Sometimes it’s best just to leave things as they are.
I was reminded of this whilst watching the latest Investment Outlook webcast this week. One of the questions Investment Director Tom Stevenson received from a customer was around exactly that - when to do nothing.
Back in March when the markets fell in response to the Covid outbreak the investor heeded our guidance to avoid the knee-jerk reaction to panic-sell and since then has seen their paper losses recover and in some cases move higher thanks to the growth of US tech stocks. Now they are asking what next and is now the time to take profits?
I’m sure many of you are thinking the same thing. This week markets have become volatile again as investors assess the impact of further localised lockdowns both here and across Europe. With unemployment rising, no firm news on Brexit in sight and the US presidential election a fortnight away, there’s plenty of uncertainty out there.
However, in response to the question, Tom Stevenson believes that value is still there. “Obviously the market is a lot less attractively valued than it was six months ago” he said, “But I don’t think the market is excessively overvalued, especially if you look outside of the US.”
Looking beyond the US, Tom commented that the UK, European and Japanese markets are all deeply out of favour and are looking pretty cheap, giving investors plenty of opportunities around the world to find good value. “I wouldn’t be out of the market at the moment at all” he said.
The problem with trying to time the market is you have to time two decisions perfectly - when to sell and to re-buy again. No one rings a bell at the top of bottom of the market so while it’s easy to think you can sell to prevent further losses and buy back before the markets go up again, in practice this is extremely difficult.
Just as market falls come unexpectedly, so do the sudden rises. It, therefore, makes sense just to stay invested to ride out the volatility if you can. The most important lesson with investing is to make sure you can give your investment time to grow. If you know you’ll need the money in the short-term and can’t invest it for 3-5 years, it would be foolish to take on too much risk. It could fall in value just before you need it.
As I’ve watched the markets respond to the Covid crisis, I’ve seen first-hand that in the world of investing there are always winners and losers. During this pandemic, not all sectors have performed the same way. Technology, healthcare and consumer durables have benefited from the crisis while retail, hospitality and the travel sector have suffered.
Being diversified, or not “putting all your eggs in one basket”, remains as important as ever. With stock market investing there are no guarantees, so spreading your investments over a range of different assets, like shares, bonds, property, even precious metals like gold, over a number of different regions and sectors, is the best way to be diversified. That way, the investments doing well will compensate for the ones doing not so well.
The easiest way to get this diversification is through a fund. For fund ideas, a good place to start is Fidelity’s Select 50 list of recommended funds or the Fidelity Select 50 Balanced Fund which, as its name suggests, provides a ready-made balance of different investments in the one fund.
If you diversify your investments across different regions and asset classes, at times like these you can afford to sit back, relax and take a long-term view. It may even mean you finally have time to start that DIY project you keep putting off.
Watch the Investment Outlook webcast
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.