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Four mistakes you can make in a market downturn

03 August 2022

2 minute read

We look at four mistakes you can make as an investor in a difficult market.

Stock market downturns are more common than you think. How long they last is anyone’s guess. So far this year stock markets have been tough to say the least.

Investors' reactions can affect their portfolio as much as how the market behaves.

Here are four mistakes you can make as an investor in a difficult market.

Panic and let emotions get in the way of judgement

It’s perfectly natural to feel a sense of panic, or to want out, when you see the funds or investments you have money in fall in value. The way our emotions change with the market cycle is why so many decide to invest when markets are performing well and to sell investments when markets are falling.

When your feelings start to cloud your decision making, it’s time to take a step back. By understanding your emotions, it’s easier to manage them and trust in a diversified portfolio that can not only take advantage of market opportunities but also weather any storms. For long-term investors, panic is not necessary.

Change your long-term risk outlook

Choppy markets might make you think it’s time to review the risk levels of your investments – and potentially dial them down. The difficult thing for many investors will be acknowledging that riding out the markets could be the best way to protect their investments.

Markets go up and down and if the money isn’t needed soon then it’s wise to stick with your original outlook and let your investments ride the storm.

Withdraw your money

At times of market falls, remember that selling your shares will mean transforming paper losses into real losses – and mean you could miss out on any upturn.

The longer you’re prepared to stay invested, the greater the chance your investments will yield positive returns. That means holding your investments for at least five years, but preferably much longer. Whatever short-term setbacks you might be confronted with, stay focused on the bigger picture and try not to be distracted by the daily performance of individual investments.

Forget about inflation

While inflation in the UK is rising, it has always been important to ensure money keeps pace with inflation. The message remains the same – investors should get invested, stay invested, and stay diversified.

Diversification has always been the bedrock of a long-term investment process and crafting portfolios that are resilient and robust in different macroeconomic environments requires careful consideration.

To build an effective hedge against inflation, it can pay to have your money managed by investment experts who are keeping an eye on the changing markets and asset allocation of the managed portfolios.

While it’s important to keep a clear head during volatile markets, if you are losing sleep over the value and risk levels of your investments then it might be a good time to reflect on whether you're comfortable to remain invested at your existing risk levels. If you don’t feel investing is right for you, speak to your Wealth Manager or seek independent investment advice.

Things to consider

The value of investments can fall as well as rise. You may get back less than what you originally invested.

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