Why human nature can lead to hasty investment choices especially in a crisis

Despite unwelcome stock market shocks, keeping sight of your long-term objectives is key.

Stock market volatility during the current coronavirus outbreak has been worrying, particularly for individuals who are working to build their savings and retirement pots. It is tempting to cash out or think about moving to less risky investments.

However, doing so would crystallise your losses – essentially make the loss ‘real’ – and increase the probability of missing the recovery in markets when it comes.

“It is upsetting and worrying, and I understand the dilemma and concern that people feel,” says Tony Clark, Head of Retirement Marketing at St. James’s Place Wealth Management. “You might have to contemplate a complete change in your retirement plans overnight. Remember that you can turn to your financial adviser for help, and that you do have time on your side. History has shown us that markets do recover.”

Wherever you are in your retirement savings journey, there are ways to make it through the current uncertainty.

I’m near retirement but I have not started drawing a pension

The turmoil in the stock market may have thrown your plans to stop work into disarray, but the medium-to-long-term impact on markets may turn out to be less significant than it first appears.

“There are a number of options open to people,” Clark says. “You might decide to work for a year or two longer. Rather than stopping your investments, this could be an opportunity to continue to save. If you carry on contributing to your pension and savings now, the delay to your retirement plans could be mitigated by a market recovery in time.”

This is where your St. James’s Place Partner can help you to take stock of your personal and financial circumstances and assist you in making decisions about your investments.

“Although there is the old adage that past performance does not reflect the future, if we look at the previous market falls, historically one can see that markets have come back over time,” Clark adds.

With this in mind, it’s important to think through the reasons you invested in the first place. Selling assets in times of trouble is typically an emotional response, not a disciplined one. Your financial adviser can take the emotion out of it, put the current volatility into perspective and explore how a flexible financial plan will stand you in the best stead for the future.

“Your financial adviser can help you re-prioritise and help you see if anything has changed,” Clark says. “They can give the long-term view and help you think calmly and reassess the situation.”

For example, while your first instinct might be to sell assets, consider instead that if you pay money into investments on a regular basis and are able to continue doing so, you can take advantage of the drop in markets to buy stock more cheaply.

I’m already in retirement and I am worried about income

For those who are retired and therefore no longer receive a salary, market swings can be especially concerning. These individuals face the challenge of drawing from retirement savings for income while also seeing their investments fall in value.

“People have been hit with a double whammy,” Clark says. “They are having to cash in more of their funds to maintain their income, but their fund has fallen in value.”

In these circumstances, your financial adviser can help you review all the assets you hold and work out whether there are alternative ways to draw income until markets recover. While it is tempting to switch out of funds that are performing badly, your adviser can provide a more holistic view about whether it is worth continuing to hold that stock or sector.

“Losses are only realised if you encash your investments when markets have fallen,” Clark notes. “It is human nature to want to invest as a fund rises and withdraw from it when it falls, but it is the exact opposite of what people should do. At times like this, remember what your original objectives were and don’t forget that you are investing over the medium to long term. Time is on your side.”

Watching the market move and worried about your retirement savings? On the verge of making a hasty investment decision? Whatever’s on your mind, your St. James’s Place Partner can help. Just ask.

Past performance is not indicative of future performance.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society.

Stephen Ogilby
Associate Partner
PFPS Wealth Management
A Senior Partner of St James’s Place

Mob: 07813133235

Tel: 01244 661 920/1