What to do when investments go down in value?
If you currently have money invested in “the stock market” the last 6 weeks have potentially been very volatile. We have seen several key market indices decline in value compared to recent highs including the UK, US and European markets.
As you can imagine this has led investors to examine their portfolios and try to find answers as to how they should view the current market and what steps they can take when investments go down in value.
As I have written about previously in my blogs, when considering your goals for the future, you should always have a plan. One saying goes: “a goal without a plan is just a wish”.
I have spoken previously about the importance of having a visual cash flow plan that allows you to see your future without simply concentrating on investment returns. This should include a suitable emergency funds and a cash reserve.
Part of the ongoing service that I provide for my clients is to build and test their goals for the future. Over the last 18 months I has also been including specific “stress test” related to their investments to help visually see what impact market volatility has on their long term goals.
In these scenarios I can illustrate what impact a significant more than double digit “loss” will have on their long term financial future. These “losses” are not plucked from thin air but are entwined with a detailed conversation regarding their individual attitude towards investment risk.
Within this cash flow plan I can highlight exactly what impact a significant market shock has on their short, medium and long terms goals. We can then have valuable conversation about what changes, if any, they may want to consider.
In my experience market volatility has two main impacts on people, these are either financial or and emotional. For example, you maybe financially secure so when these events happen, they have little or no impact on your day to day life. However, the thought of “losing money” may make you feel very uncomfortable.
This is where a visual plan of what real impact market movements have on your future can be vital. I have found that being able to refer my clients to their individual “stress test” scenarios has helped to bring both confidence and understanding, at a time where there is potential uncertainty.
So, in answer to the question, “What should you do when investments go down in value?” the answer is, refer back to your plan to see what real impact these movements have on your goals.
If you don’t have a plan and would like to start building one, then please feel free to make contact and we’ll be happy to help you start.