Shortly before I wrote this blog the FTSE 100 Index of leading shares was up nearly 100 points or about 2% on the day.
A few days ago it fell by over 170 points! To say that the equity markets are volatile at the moment is a bit like saying it snows in the Arctic!!
Some investors respond badly when their investment portfolio falls in value.
Typically investors know that the value of many types of investments, shares included, can fall in value as well as rise. The risk warnings that are apparent on just about every investment brochure and investment report are there for a reason.
It truly is the case that “you may not get back as much as you invest”. If you invest an amount of money and then en-cash that investment when the value is lower than the amount you originally invested then that will truly be a “loss”.
But a fall in value does not a loss make.
A loss only occurs if you disinvest at the wrong time because a fall in value in many cases is followed not long after by a rise in value.
The lessons here are clear. If you have a short term objective for money and that requires pretty much having a known amount available at a known time then do not invest that money.
The best place for money like that is in a nice safe bank or building society account (even when interest rates are low) so that you know for sure that the money is going to be there for you.
If on the other hand you are investing for growth in the medium to longer term or want a portfolio that will generate sustainable income then you are probably going to have to invest in assets that carry some risk because they are going to provide the best prospect of growth.
Whatever investments you make ensure that they fit your attitude towards risk, reward and volatility and indeed your tolerance for potential loss.
Most importantly make sure that you review your investments on a regular basis.
· Do they remain suitable for your needs and wants?
· Is the risk profile still the one that reflects you?
· How have the individual funds performed?
· Should some of them be replaced?
· Has the balance of your investment been shifted by performance and should your investments be rebalanced?
And very importantly;
· Are your investments still on track to enable you to achieve your lifetime goals and objectives?
