Investments go up as well as down. It’s one of the most basic principles of investing that we’re told early on in the process. So why do so many of us panic when conditions in the market are less than ideal?
In a climate of high inflation, soaring energy prices, war in Europe and looming recession in the UK, you might be thinking of cutting your losses. But when you took out your investment, it’s unlikely that you were planning on collecting lucrative returns straight away.
Surely you were looking more at the long term, with a view to yielding the rewards of your investment much further down the line? In times of economic uncertainty and global crisis, it’s worth remembering that, rather than acting rashly and panicking.
After all, we’ve been here before. The coronavirus pandemic, for instance, was the biggest economic shock the world has seen for many years. Before that we had the 2008 financial crisis, conflicts in Iraq and Afghanistan, and earlier still we had two world wars.
While each of these crises were profound and had lasting effects, they didn’t kill off the financial markets overnight. Although it may have taken several years in some cases, they did rebound and resume normal service.
So even if your investments are taking a serious hit, in the face of the latest crisis, that’s not a permanent state of affairs, and you should be confident that the situation will improve.
Let’s imagine you’ve plotted your investment journey on a graph. If you plot it every day, the line is likely to be very jagged, with lots of peaks and troughs at different points in time.
But if you sat back and only checked it after, say, five or ten years, your graph would probably show a fairly straight line heading upwards.
The moral of the story is that you don’t need to be checking the value of your investments day after day, as it’s long-term growth that matters.
We understand that the headlines can be alarming, and there’s no getting away from that. But if your financial decisions are being driven by your emotions, you’re probably not going to make the best ones.
Of course, you could sell up if your investment drops by 1,000 points overnight. But how will you feel if this lost ground is made up in the following days, and you’ve massively undersold your investment?
You’ll quite rightly be wishing that you’d held your nerve and kept your funds in the market.
So ignore the volatility that’s going on around you, and even if you’re being bombarded with the scariest headlines, don’t panic.
The situation will, and always does, calm down eventually.