1. Hard as it may be, try and keep calm – in the year of the FTSE 100’s most memorable crash in 1987, surprisingly the market ended up higher than when the start of the year. If you are prone to lose your nerve, by the time you decide to sell, the moment has most likely passed. And if you have sold, then the chances are you will miss out on the recovery.
2. Before making any rash decisions, look to see what the causes of the market fall are. In 1987 the market fell for 2 reasons. First of all the market got far too excited and ahead of itself. And secondly, once the sell off began, computer selling took over. Before making any decision to sell try and find out if the fall is justifiable.
3. Investing is all about taking a long-term view. Take a look at a long term chart and see how insignificant market crashes and falls are. The crash if 1987 is now a mere blip on the chart.
4. Always be ready for the worst, but spreading your risk and not putting all your eggs in one basket. Some investors get hung up on a particular fund or market and can get badly caught out. In the fall of 1987 the Hong Kong market closed for a week to try and protect the market, only to spectacularly fail – I say it again, spread your risk.
5. Golden rule – You cannot time the market, no one can. I often get asked when is the best time to buy, but and it is impossible to tell. It’s even been proven that it’s impossible. Prof. Markovitz won a Nobel Prize for proving it was impossible. It’s more important to choose the right investments and hold a long position to get good returns over the long term.
6. Keep Investing on a regular basis. This brings the advantage of pound cost averaging. When the market falls you buy more units/shares and so long as the long term trend is upwards, you will be far better off.
7. Keep some of investable cash in reserve. Markets fall, that’s a fact of life and when they do you can be ready to take advantage. It may be frustrating only earning a modest amount in cash, but we all need to keep a bit in reserve anyway for emergencies, or investment opportunities.
8. Don’t get caught by the herd mentality of buying high and selling low. Sadly this is what often happens. When everyone and their Granny are piling into the market, this is the time be very careful. It’s certainly not a good time to be committing heavily into the market.
9. Be aware of the charges, but don’t let this override your investment decision. The different between the performance of a Tracker fund and a well managed investment fund can be enormous. Even small differences in the annual performance of your investment over the years will make a huge difference to your wealth.
