Markets have taken a knock following concerns about government borrowing costs which rose to high levels not seen since 2008 in the UK. Investors might be concerned that this has affected the price of shares and the value of investments.
Here we talk you through what’s happened and how you can handle such market wobbles.
What’s happened?
UK markets are suffering as government bond yields soar to highs not seen since 2008, affecting the strength of the pound and stock valuations. Rising yields are bad news for governments, which must pay more to service debts.
As a result, a dampener has been put on the UK's economic prospects since the country has high levels of debt. But it’s not just the UK markets impacted – almost everywhere, government-bond yields are rising quickly.
Will Hobbs, Head of Multi-Asset Wealth at Barclays UK Wealth Management, said: “There has been a global rise in bond yields mostly stemming from the US, with the effects rippling out through the rest of the world.”
“However closer to home, there is concern over the UK’s broader fiscal situation. In order to harvest any longer-term gains, investors must be ready to stomach these market wobbles in the short-term. You have to be in it to win it as they say.”
What should investors do?
As an investor you must learn to live with the fact markets don’t move in a straight line – and that you’re exposed to things that can’t be predicted.
When it comes to share prices, volatility and short-term losses are inevitable - and part and parcel of investing. There are steps you can take to make sure that your investments can handle during difficult market conditions.
Here are some simple strategies you can adopt to tackle uncertainty:
Stay calm and carry on…
There are undeniable challenges on the horizon for investors with a challenging outlook for the UK economy alone. Brace for volatility, but don’t bail out. Staying invested over the long term, even when are short-term bumps, is what sets you up for a greater chance of success. And if you sell investments as a knee-jerk reaction to a sharp fall you could miss the recovery. For example, those who cashed in their investments at the height of the global financial crisis in 2008 would have missed-out on the substantial gains markets made during the subsequent years of recovery.
Get the right balance
Diversification is key to creating robust long-term investment returns. That’s because a well-diversified, balanced investment portfolio is usually the best strategy for long-term investing. Such an approach can limit the impact of unexpected risks and reduce the volatility of portfolio returns.Regular listeners to our weekly Word on the Street podcast will have heard these strategies before.
Ignore panic-stricken headlines
While our financial goals may be long-term, it’s easy to fall into the trap of worrying when share prices move sharply. The Smart Investor app is a handy tool to keep track of your investments and how they’re performing. But you won’t do yourself any favours checking your portfolio valuation daily as it could lead to you becoming overly conservative, should you feel unnerved by the ups and downs.
Remember that typically, the longer you are prepared to stay invested in the stock market, the greater the chance of positive returns. Experts are typically unanimous that investors should ignore the short-term noise and focus on long term goals.
Look back in time
No one can say for certain what the markets will do in the future – it’s not possible to predict. But historically, markets always recover from periods of trauma.
Opportunity knocks
You can benefit from the highs and lows of share prices as a regular investor. By drip-feeding money into the market on a monthly basis, you end up buying more shares when prices fall and the value of those stocks will rise along with the share price. The reverse is true, however, so you’ll pay a higher price when share prices rise.
The over-riding message in times of stress is - get invested, stay invested and stick to your plan.