<\/p>\n
Global stock markets, as we\u2019ve seen in recent months, can be unpredictable and highly volatile. They move frequently \u2013 and sometimes sharply \u2013 in both directions. This is why it\u2019s important to take a long-term view (typically ten years or more) and remember your reasons for investing in the first place. Investors need to be prepared to view the downturns simply as part of a long-term investment strategy and stay focused on their investment goals.<\/p>\n
Avoidance of trying to second-guess market movements<\/strong> Another option for more risk-averse investors over the long term is to save regular amounts, which avoids trying to second-guess market movements. This method of investing is called \u2018pound cost averaging\u2019. You are effectively drip-feeding money into shares or units on a regular basis rather than committing a single larger lump sum, and it works by smoothing market volatility.<\/p>\n Reduce the risk of buying in highly volatile market conditions<\/strong> Regular or phased investments can also reduce the risk of buying on the wrong day and in highly volatile market conditions \u2013 as we\u2019ve been experiencing \u2013 and it could mean that investors are able to purchase more units. This type of investing can more accurately be thought of as a series of lump sum investments, since the entire contribution is invested each period. Phasing can be achieved via an automated phasing facility or by instructions to switch from one fund to another over a period of time specified by the investor.<\/p>\n Instilling investment discipline no matter what the market is doing<\/strong> This principle means that you invest no matter what the market is doing. Pound cost averaging can also help investors limit losses, while instilling a sense of investment discipline and ensuring that investors are buying at ever-lower prices in down markets.<\/p>\n Drip-feeding a lump sum investment into funds in regular amounts<\/strong> Investors with an established portfolio might also use this type of approach to build exposure a little at a time to higher-risk areas of a particular market. The same strategy can be used by lump sum investors too. Most fund management companies will give you the option of drip-feeding your lump sum investment into funds in regular amounts. By effectively spreading your investment by making smaller contributions on a regular basis, you could help to average out the price you pay for market volatility.<\/p>\n Taking advantage of market down days by regular long-term saving<\/strong> Historically, the overall direction of developed stock markets is a relentless and continual rise in value over the very long term, punctuated by falls. It\u2019s important not to let current global uncertainties affect your financial planning for the years ahead. Individuals who stop their investment planning, particularly during market downturns, can often miss out on opportunities to invest at lower prices.<\/p>\n Impact on global markets over the coming months <\/strong> History shows again and again that the ups and downs of different types of market conditions are part and parcel of investing, and there have been many times in the past when events have caused short-term corrections.<\/p>\n","protected":false},"excerpt":{"rendered":" How to avoid trying to second-guess market movements Fear and worry is understandable, particularly as the coronavirus (COVID-19) outbreak led to the biggest daily drop in the FTSE 100 since the financial crisis. Trying to second-guess the impact of events such as the coronavirus or the recent global stock market volatility \u2013 or even attempting… Read more »<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[2],"tags":[],"_links":{"self":[{"href":"https:\/\/www.paulyoungifa.co.uk\/news\/wp-json\/wp\/v2\/posts\/3578"}],"collection":[{"href":"https:\/\/www.paulyoungifa.co.uk\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.paulyoungifa.co.uk\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.paulyoungifa.co.uk\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.paulyoungifa.co.uk\/news\/wp-json\/wp\/v2\/comments?post=3578"}],"version-history":[{"count":0,"href":"https:\/\/www.paulyoungifa.co.uk\/news\/wp-json\/wp\/v2\/posts\/3578\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.paulyoungifa.co.uk\/news\/wp-json\/wp\/v2\/media?parent=3578"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.paulyoungifa.co.uk\/news\/wp-json\/wp\/v2\/categories?post=3578"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.paulyoungifa.co.uk\/news\/wp-json\/wp\/v2\/tags?post=3578"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nOf course, it\u2019s also important to remember that past performance is not a guide to what might happen in the future, and the value of your investments can go down as well as up. Market conditions, investor sentiment and other factors will cause prices to rise and fall \u2013 and this in turn affects the value of the capital that was used to purchase them.<\/p>\n
\nPound cost averaging is based on the principle that when markets are low, you acquire more for your money, and when markets are high, you acquire less. It is most often used with equity-based investments rather than bonds or fixed income assets that tend to be less volatile. The concept can apply to regular monthly investing as well as spreading the investment of a large lump sum investment over a period of time.<\/p>\n
\nTo give you an example, one way to do this is with a lump sum that you\u2019d prefer to invest gradually \u2013 for example, by taking \u00a3500,000 and investing \u00a350,000 each month for ten months. Alternatively, you could pound cost average on an open-ended basis by investing, say, \u00a35,000 every month.<\/p>\n
\nRegular saving and investing is a highly effective way to benefit from pound cost averaging, and instils a savings habit by committing you to make regular contributions. Regular saving is especially useful for investors who want to put away a little each month.<\/p>\n
\nInvestment professionals often say that the secret of good portfolio management is a simple one \u2013 market timing. Namely, to buy more on the days when the market goes down, and to sell on the days when the market rises. As an individual investor, it is likely that you may find it more difficult to make money through market timing. However, you could benefit from market down days if you save regularly by taking advantage of pound cost averaging.<\/p>\n
\nIt\u2019s likely that the coronavirus will continue to have an impact on markets over the coming months, and even years. However, major events causing global markets to fall, particularly in the short term, is something we\u2019ve seen time and time again. And it doesn\u2019t mean that markets won\u2019t recover, so try not to worry too much.<\/p>\n