Stock Markets around the world have suffered their worst week in more than a decade with investors fearful of the impact of the Coronavirus on continued growth this year.
The volatility is likely to continue in the coming months as governments discover the full impact of the new virus on our health, and how this is likely to impact the global economy.
It’s a horrible thing for those affected, and we’re yet to discover just how many of us will be affected, but there is no question that it’s already having a knock-on effect on the value of companies all over the world and that in turn has an impact on the value of our savings and our pensions.
But none of this is new. Stock markets rise and they fall. It has always been this way and there is no reason to think it will ever be any other way. That is the nature of the beast. Some people have made a lot of money when markets rise and more have lost a lot of money following markets on the way down.
That’s fine for professional investors who understand the risks but for many of us ordinary investors who invest mainly through Stocks and Shares ISAs or via our pension funds the warning that we are given when we initially invest that ‘The value of your investments can fall as well as rise’ doesn’t really seem to cover the recent large falls in markets. At the moment ‘the value of your investments can fall as well as plummet’ seems more appropriate. The immediate reaction is to panic and get out of the market when we can, and that may seem the natural thing to do and the best way to minimise losses in case the market falls even further.
Unfortunately it is rarely the best thing to do. The only thing you will do if you sell is crystallise your losses and make it much more difficult to get back any money you have lost.
That’s why it’s important to understand these risks before investing in the stock to make sure you only have as much exposure to the Stock Market as you are comfortable with.