Financial markets are like roller coasters; they have ups and downs. And when they drop, there’s no denying that it can be pretty scary . However, falling markets aren’t always bad news, and there are ways that could help you minimise potential losses and make the most of the situation. Here are some things worth considering.
What could you do to help minimise losses when markets drop?
Seeing markets fall can be nerve-wracking, but it’s important to remain calm and ignore the noise. When markets drop, it can be very tempting to sell investments that are losing value. In fact, many investors will sell because they’re afraid to make further losses, but panic selling isn’t always the wisest thing to do. Think about it, even if your investments are going down in value, your losses will remain hypothetical if you remain invested – it’s just a scary number on your dashboard. But if you sell, your losses will become real, and you could end up losing money. If you want to minimise losses, doing nothing and resisting the urge to sell could help. After all, market downturns haven’t continued forever, and although nobody can predict the future, evidence suggests that markets tend to bounce back over the long-term. For instance, between 1984 and 2019, the FTSE 100 had 9 years where it delivered negative returns, but every time, the UK market recovered and looking at the bigger picture, the FTSE 100 is now 1373% higher than where it began (including reinvested dividends)1. So, if you sell, you could potentially miss out on potential market rebounds.
In addition to remaining calm, it’s important to think about the long-term. A good way to ride out the bumps and maximise your potential returns is to remain invested over a number of years, regardless of market movements. In fact, according to many studies, the longer you stick with your investments, the more likely you are to see positive growth. For example, people who’ve invested in the FTSE 100 for any 10-year period between 1984 and December 2019 have had an 89% chance of making a gain – and this time period included many drops, such as the 2008 Global Financial Crisis2.
Things to consider when markets are falling
When markets are falling, it could be worth looking at continuing your investment journey throughout this period. Why would I do this, you ask? Well, typically, falling markets mean that investments are getting cheaper, and in the investment world, there’s a famous saying that goes ‘buy low and sell high.’ And market drops could give you the opportunity to do just that. Since investments are cheaper, you should be able to grab some bargains, and if these investments were to see their value increase over the long-term, you could potentially make a profit. If you want to make the most of this type of situation without the hassle, consider making regular payments to your investment plan. That way you’ll have funds available to pick up cheap investments. Topping up your investment Plan with Wealthify is easy! All you need to do is set up a Direct Debit and choose how much you want to pay in monthly. We’ll do the rest, from picking your investments to managing your investment Plan on an ongoing basis.
1: Data from Bloomberg
2: Data from Bloomberg
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Past performance is not a reliable indicator of future results.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.