To say that the stock market has been volatile lately is an understatement. The “footsie” as it’s commonly known started life in January 1984 with a base level of 1,000 and peaked at an all time high of 6,950 on 30th December 1999. Since that high point it has fallen back below 4,000 and several times been above 6,000. At the time of writing, it stood at 5,130.
This pattern of increased volatility is mirrored by all the major stock markets around the world. With the current debt crisis affecting some of the European countries it is possible that this pattern will continue for some time. This has meant that returns from investments linked to stock markets (both in the UK and abroad) have been uncertain, and many investors have become increasingly nervous.
So should you put all your money in the building society or bank? It will be safe: whether you’ll make a real return on your money after inflation is another matter. Again at the time of writing, the best easy access account for a deposit of £1,000 was paying 3.15% – but if you’re a basic rate taxpayer, that equates to just 2.52%. With UK inflation currently in excess of 4% then there’s a significant risk that capital placed on deposit will decline in real terms.
Some investors are understandably worried by this combination of volatility and low rates of interest. But it’s important to remember that it hasn’t all been bad news. Gains have been made in markets such as the Far East, Latin America and Eastern Europe over the past few years, although as we know, past performance is not a guide to what may happen in the future.
All investment is a balance of risk and reward – and it is important to determine the level of risk that is acceptable to you. Some investors are naturally cautious; some are prepared to be more adventurous in the hope of a greater return. But even if you are looking for higher returns, your independent financial adviser will still build in some ‘safety-first’ factors – for example, making sure money is spread geographically and that disproportionate amounts are not placed with one investment company.
However, the most important thing a good adviser will do is keep in touch with you and work with you – answering your questions when markets go through difficult periods, and providing you with regular updates and valuations. That way your investments can be kept on track to meet your original goals.
If you would like to discuss your investments, or have any concerns about the current market volatility, then please don’t hesitate to contact us.
*Sources on request