Doom and Gloom, death and destruction and billions wiped off the stock market seems to be all that is on the news today.
If like many of my clients, you are worried about the fact that every day you appear to be losing thousands of pounds daily on your investments and your worried about how this will impact your retirement or your standard of living. Then read on and find out why now is potentially one of the best times to be invested into the market.
Everyone knows that investing into shares and stock market-based investments carries risk and that risk is that the value of your investments can rise and can FALL.
The problem is that for the last 10 years any falls have been short lived.
Now, we are seeing market falls not seen since the “Credit Crunch”, the Dot Com Boom/Bust and the good old market crash of ’87.
Resist the temptation to sell out and sit in cash and buy back when the markets go up.
It would be nice to have a crystal ball and have sold all your investments at the top of the market and wait until your “Alexa” notifies you that the bottom of the market has been reached so that you can pile your money back in.
Therefore for most people it's too late, you're in it for the long haul, You're on a roller coaster and you can't and shouldn’t get off and the best part on a rollercoaster is the falls, and you're going to see some falls and some rises until eventually you will be back where you started and with an Active Investment Strategy that is likely to be a lot quicker than following a passive strategy.
You will see a fall and then a bounce and then a fall and so on until you get pulled back upto the level you were at previously.
If you have not followed a passive/tracker investment strategy, then now is the time that your fund managers are going to work. They are looking at shares in companies that they have had their beady little eyes on for a while and were just waiting for the right price.
It’s the actions that they are taking now that will help to ensure that your future has a lot more potential.
Let’s take a look as to what that means in practice. I have chosen a Balanced Managed fund with a history that extends back prior to the Dotcom boom to highlight my explanation this is not necessarily a fund that would be recommended.
As you can see over the last month the FTSE Allshare is down 27% and the Tracker is down 24% the Managed fund is down 16% this means that the managers have only fallen around 2/3rds of the market.
Over 1 Year
As you can see
FTSE Allshare down 20%
Tracker down 17%
Managed fund down 2%
When you start increasing the timescales the difference is distinctly noticeable. When we look at the graph as to the performance of the FTSE allshare as against the Balanced fund the difference is staggering.
As you can see
FTSE Allshare is up 379%
Tracker is up 354%
Managed fund is up 569%
In essence, the Manager of the active fund is taking steps to reduce the impact of the funds and as a result they do not lose as much value as a Tracker/Passive fund and this means that when the markets rise it takes less effort for them to increase the value of the overall fund.
What does this mean?
It means that Fund Managers expect falls in the market, and they plan for falls in the market as opportunities to go and buy investments that they wanted on the cheap, this means going forward once normality returns, you could be sitting on a tidy profit its not guaranteed but the chart above covers 2 of the worst market crashes in recent history and whilst the Managed fund is up significantly more than ALLShare or the Tracker, you are still sitting on a profit.
Yes, you will be losing money in the short term, you will be looking at your investments and remembering the good old days, but for active fund managers here and now is the time they get to do their job and justify their fees.
Passive fund managers are earning their fees too.
If you are invested into passive funds and would like to know what your options are then give us a call to discuss options (01543 624426). If you are in an Active fund sit back and it may seem like a hard thing to do but enjoy the ride as your already part way through the journey.