Simon Prestcote member of the Barnet financial planning team assesses what clients should do given the recent equity market volatility
Several clients have asked “what should we do in a time of extreme market volatility such as we experienced last week?”
As usual in times of market volatility, we urge caution in acting hastily. Ask yourself, does a short-term market correction affect the way you plan to live your life, manage your expenditure, or manage your portfolio?
We talk to our clients’ regularly about portfolio expectations and potential returns and build these into long-term cash flow projections with our clients. We always try to use realistic average return projections based on historical returns and the client’s acceptance of investment risk. These projections attempt to take into account market falls – we’re not simply cherry picking the good years and using those figures.
Simon Prestcote, chartered wealth manager and independent financial adviser, Barnet North London said:
'The danger in acting hastily can be seen in the actions of one client back in the market falls in the summer of 2011. As markets started to fall in July / August that year, the client felt it made sense to sell out of his portfolio in its entirety. Whilst a reasonable attempt was made at timing the exit (the client missed around half of the market fall that occurred), they completely missed the subsequent rise in the markets, only re-investing too late. In other words you not only have to time your exit but also your re-entry. Even professional investors struggle with this. As a consequence this client now has average returns for the last few years, considerably below those of clients who simply sat tight through that period.'
Simon Prestcote, chartered wealth manager and independent financial adviser, Barnet North London continued:
‘The worst days in the markets are often followed by some of the best, and missing just a handful of days can affect your returns for years. To understand why the markets are volatile we recommend reading Mark Slobom, independent financial adviser Harpenden – Reviewing recent equity market volatility. Mark explains that it is actually positive news that is causing the recent equity market falls. In recent years equity markets have been particularly strong so we have grown unaccustomed to market falls, but this is usual for equity markets and it doesn’t change our view about the merits of stock market investing on a medium to long-term time horizon.’
Please note: The value of investments can fall as well as rise. You may not get back what you invest. The Financial Conduct Authority does not regulate cash-flow modelling.