Huge sums were wiped off stock markets across the globe on Monday. What should you do now?
Stock markets across the world are still reeling from 'Black Monday', when huge sums were wiped from markets, sparked by chaos in China.
The Shanghai composite fell by 8.5%, its worst one-day performance since 2007. The collapse was prompted by poor growth figures, with further big falls seen so far on Tuesday.
The selling frenzy spread across the globe though. The FTSE dropped 4.7%, its worst one-day performance since 2009, with drops in the US and across Europe too.
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Don’t look away now
If you have a stocks & shares Isa or a private pension, then looking at your balance today may be a little bruising. Chances are you have taken something of a hit.
It can be easy to get carried away with the red numbers, to be tempted to sell it all and run to cash or gold, much less volatile homes for your money.
But selling amid market panic is not a great move. Context is important. The FTSE has had a terrible time of late, but it’s not that long ago that it was hitting new record highs. And the FTSE has had a very strong few years – if you invested five years ago, you’ll still be sitting on a profit of around 13% today.
Black Monday was a bad day. The FTSE has had a ropey few weeks. That doesn’t mean it’s time to run away though.
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Taking stock
So what should you do, besides not panic?
Firstly, take stock of where you money is invested. Are you sufficiently diversified? Is your money entirely in stocks and shares, or do you have some in assets that aren’t linked to the stock market? Is your money invested around the world, or just in small pockets like Europe or the emerging markets?
If you don’t feel that your money is spread around enough to cover stock market chaos like we’ve seen this week, take this opportunity to fix it!
Investing is a long-term move. There will be periods where value drops from the FTSE and other indices. But history has shown that over the long run, you are better off putting your money into stocks and shares than cash.
Nigel Green, CEO of the deVere Group, said that while investors should be vigilant of what led to Black Monday, so long as their portfolio is well diversified they should remain “cautious and consistent”.
He added: “Investors need to ask themselves ‘will stock markets be higher than this when I retire?’ Looking at financial market history, the answer is probably ‘yes’, if they have a decade or more ahead of them. So, logically they should carry on buying as markets fall.
“History teaches us that panic-selling in stock market crashes can be potentially financially disastrous for investors.”
Should I invest more?
There’s also the argument that a falling market actually presents opportunities for investors. Should you try to take advantage, spot a bargain or two?
Russ Koesterich, global chief investment strategist at BlackRock, said that the key takeaway for investors is that all of the selling has restored value in some areas of the market, particularly in Europe.
He pointed out that European equities are currently trading at roughly a 45% discount to those from the US. He added: “While European growth is likely to remain lower than in the U.S., given the size of the discount and the fact that the major risk associated with Greece has been temporarily removed, the current discount suggests European equities once again look attractive.”
What about interest rates?
According to Baker Tilly, this 'market correction' will reduce the chances of inflation rising, and with it push the chances of a Base Rate rise further back.
Rob Donaldson, head of M&A and private equity at Baker Tilly Corporate Finance, said: "We think interest rate rises have just been pushed back into 2016."
Mark Carney, the governor of the Bank of England, had previously hinted we may see our first rate rise in six years around the turn of the year, so that may no longer be the case. That's good news for mortgage borrowers, but yet more dreadful news for savers.