As the US market saw Wall Street stocks fall sharply earlier this week, fresh concerns about the feasibility of financial investments is a natural knee-jerk reaction to losses – but our Director Matthew Pescott Frost explains why it’s nothing for clued-up investors to worry about.
Wall Street’s benchmark S&P dropped by 3% on Monday 5th August, having experienced its steepest one-day drop in two years. This comes after the Japanese market suffered its largest dip since 1987, meaning almost 95% of stocks in the S&P 500 fell. However, this isn’t a cause for concern for savvy investors.
It’s important to ensure that our clients understand risk – and the steps we take to carefully mitigate this through a varied mix of portfolios. Most clients we are talking to are sitting on annual gains of somewhere between 8% and 12% year on year, with specifics varying on the degree of risk they are taking.
So, while market falls can be a shock, it certainly shouldn’t be a concern for a seasoned investor. In terms of reaping longstanding gains from long-term planned investments, it equates to nothing more than a slight readjustment.
How Matthew Douglas drives down exposure to risk
The recent news about markets is just the usual noise and investors shouldn’t panic and make impulsive decisions. Markets always overbuy and always oversell – it’s how they operate, so an occasional loss is to be expected.
It’s nothing out of the ordinary, and after everything we’ve had over the past five years, this feels fairly trivial – without being too flippant about it, of course.
However, for reasons exactly like this, Matthew Douglas has been dialling down reliance on big US technology in our portfolios, because we felt it was getting a bit weighty and adding too many uncertain variables – which turns out to be the case. It’s nice to feel vindicated when things like this happen, to a certain extent, as it shows our clients that we’re making informed, intuitive decisions to mitigate exposure and generate income.
It’s true that Nikkei in Japan did take a big hit, but we’re reassuring clients that their exposure is very limited in this regard, so it’s not something to be actively worried about.
Don’t react to losses impulsively
It’s important that those looking to cultivate long-term gains on their enduring investments don’t react impulsively and sell their assets without careful consideration – as this can compound a problem that otherwise may not impact your longstanding gains at all.
For example, if we look at valuations of stocks over the past year, it has been almost exclusively concentrated in US technology – but that intense focus hasn’t filtered out to the rest of the market. Overall, there has been a lot of growth, if you look at stock markets as a whole and not an isolated sample.
You can read more about this topical issue at Citywire’s recent news update, in which I offer my financial insights alongside other industry experts.
If you’d prefer more information about how the stock market may impact your investments, or you’d like to ensure you’re embedding diversity to offset risks in your portfolio, get in touch with our expert team today.