Protecting your portfolio in Troubled times
The nationalisation / failure / bailout (delete as appropriate) of Bradford & Bingley is a stark reminder that these are unprecedented times for stock market investors.
No one knows just how deep, or far-reaching, the fallout from the US will be and, to some extent we'll be at the mercy of the markets, here are a few important steps you can take to protect yourself.
Don't make rash short-term “panic” decisions
If you are spending your time reading the papers, watching TV and the internet trying to keep up with market developments - don’t ! Whilst news of crashes, government bailouts and plunging markets make for great headlines, they are all short term stories. It's perfectly reasonable to want to keep up with unfolding events, but making long term investment decisions based on a short term media circus is a losing strategy in the long run.
Focus on the big picture, your long term financial plans, and even striking market drops won't disturb you as you know over the long-run the ups and downs tend to smooth out into a nice upward trajectory.
It's always hard to stay focused and dispassionate, there is certainly more bad news to come. We’re not saying don’t make adjustments to your portfolio, just keep focused on solid, strategic reason for making changes.
Market drops will provide long-term investment opportunities
The upside of a market fall is that intrepid investors (and fund managers) can snap up quality stocks that have been dragged down with the rest of the market. For example, risk-taking banks may have got themselves into trouble, but the more stable ones are likely to emerge from this crisis in a very strong competitive position. Consumer staples also tend to do well in this environment, supermarkets and the like. Good fund managers will be out there now hunting down those long term gems.
Diversify, Diversify, Diversify
There are no guarantees but one of the best approaches in a financial crisis is a diversified portfolio. As mother always said, “Don’t put all your eggs in one basket”.
It’s not that long ago that Banks, Financials and the Property sector were the darlings of the financial world. Anyone with all their eggs in those baskets will have a pretty messy omelette now (dodgy analogy, but you get the drift !). Likewise the commodities sector has had a good run in recent years, but the oil price has faltered and metals prices have fallen from their recent highs.
This is not a time to panic sell. It’s a time to rationally sit down and review your portfolio for the long term, not taking unnecessary risks, yet positioning it to benefit from the inevitable market upturn, when it eventually comes.
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