After the terrible events that occurred in Japan last Friday the stock markets have reacted strongly to the realisation of what is an unimaginable disaster.
There has been much volatility in markets all around the world and I wanted to send a special edition of this newsletter to focus on three key aspects to investing that aim to reduce the affects of such an occurrence.
Spreading your investments so that you are not exposed to any particular market sector or geographic region/country is an incredibly important aspect of investing.
It has the effect of reducing the risk of your portfolio because you are not at the mercy of a single fund, country, sector etc. If implemented correctly the diversification process can also help you invest according to your precise needs.
When making lump sum investments there is always a danger that you will invest at an inopportune time. That is, you may have invested your full ISA allowance at the beginning of March only to see prices fall in the subsequent days and weeks afterwards.
To avoid this happening we advise our clients to phase their lump sum investments over a period of time. This enables them to stagger the investment of a lump sum over a number of months and avoid the risk of investing at the wrong time.
You can also do the same when selling investments to avoid selling and then watching the value of the funds you were invested in go up and up.
When you are invested with a proper strategy in place you can actually take advantage of fluctuations in values by re-balancing your investment portfolio. This is a process that forces you to buy when investments fall in value, relative to your other holdings, and sell investments that increase in value relatively.
Buying low and selling high – imagine that.
I should point out that this should not be done on an ad hoc basis to take advantage of ‘good days’ and ‘bad days’ in the markets. This is a systematic process that takes emotion and greed out of the equation and ironically will probably make you more money and happier.