Don’t Sell Your Investments Instinctively

Jonathan Raymond, Investment Director at Quilter Cheviot, explains why now’s not the time to instinctively sell your investments.

Following the recent setback in equity markets, we have had a number of clients contacting us about whether they should move their investments to cash given the uncertainty around.

These concerns are of course justified. The world always carries uncertainty and there is enough of it about what with the threat of trade wars and a slowing global economy.

The trouble is that equity markets generally trend upwards over the longer term, even though it’s not unusual for them to fall by 10% over a short time. The FTSE 100, for example, has regularly fallen by 10% since 1990, though it’s relatively rare for it to fall by more than 20%.

Many clients talk about selling and moving to cash for six months, effectively suggesting a wait and see approach. But any decision to move to cash/sell down equities means that two things need to happen to make it ‘work’: 1) markets must continue to fall and 2) a decision must then be taken to reinvest after they have fallen from current levels.

From experience, it is not obvious that 1) always happens. Markets are just the collective opinion of what the price of something should be. Everyone buying and selling securities has taken a view as to what might happen and even if markets do fall further, getting back in is extremely difficult. When markets fall further then the gloom is amplified and people do not want to invest or buy.

It is possible that you sell down to cash only to see the market recover. This then would put a massive dent in your returns profile and would force you to make an uncomfortable decision to reinvest with markets at a higher level.

As a discretionary wealth manager, we ensure our clients’ investments are suitable for them. A 10% correction, or even one of 20-30%, should not change that assessment. If it does, think about your appetite for risk, but we would caution against any knee-jerk decisions. It’s better to review your risk profile regularly rather than move it around depending on how you feel on a day to day basis.

On a long-term view, these setbacks are ‘blips’. If you are still working and ‘accumulating’ capital, these setbacks allow you to buy more equities with a given amount of capital: when the recovery comes, you get an outsized effect on your overall pot.

It is obviously unnerving to see the value of your portfolio suddenly drop. However, if you move to cash, you run the risk of selling at exactly the wrong time. Regular corrections are the ‘price’ investors pay for good returns over the long term.

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