Whether it’s your pension, ISA or general investments, there can be some tough times when reading your investment reports each year.

This can lead to an understandable response, and a biological hijack of your thoughts and subsequent decision making with where your investments are held. These are all natural responses, but need to be controlled if you don’t wish to make those losses real ie: you sell in a down market.

Let me give you an example: The S&P500 sat at 3380 on Valentine’s Day 2020. As a lovely present, we were introduced to covid. Great. Six days later on the March 20, the S&P had fallen 32%. Coupled with a global panic and being told to stay at home, it’s easy to see how investors might be emotionally hijacked as that prehistoric part of the brain takes over, and the logical part is shut down.

And so, an investor might respond with: “I can’t take anymore, get me out and I’ll reinvest when its calm again”. Errr no.

One week later, the S&P500 was up over 10%. Two and half months later, the S&P was up 38.5%. A year later it was up 69.8%. At the end of 2021, and still in a pandemic, it was up over 106%. Coming back in then when the ‘dust had settled and calm’, would have meant you missed out on over 106%, and then joined a market that was about to have a series of falls over the next 10 months by 24%. If you panicked then and hopped out, you would have missed the 27.8% return over the next nine months.

And that is mistake number one. Don’t time markets.

Naturally, no investor should be exposed to just one stock market index such as the S&P500, as that would be a concentrated risk and that is lesson two - fully diversify your portfolio. Fund managers do not know for sure what will perform well and when, so they just ensure you have the very best stocks and holdings for when they do and as much protection for when they don’t.

Don’t get discouraged when the values are not going up. If the markets aren’t rising, you shouldn’t really expect to make returns during that period. There are doldrums, and you must sit them out. You can’t pop into a money market fund in cash and hop back into the market when: ‘it’s ready’- see one above.

Do not allow your emotions to get the better of you either with upward excitement, or downward dismay.

Understand your true attitude to risk so there are no surprises. The potential for return comes alongside the potential for fluctuation in the market both up and down. If you know that and understand it, there won’t be any surprises. Downside fluctuation creates opportunities – see one above.

Use an independent financial adviser and particularly one that has investment specialism and excellent research. It is not a given that all independent financial advisers have this specialism, so check that out, but buying from a person who is tied to just one company will mean you will miss out on thousands of better options. And you will pay more.

Don’t chase fad investments. Pub talk never makes it into the long room in Trinity College for a reason. For every buyer there is a seller and only one can win.

Don’t fall in love with a stock, share or fund. Apply zero based thinking to it: Knowing what I now know, would I buy that? If the answer is no, sell it quickly. That’s a good discipline in life too.

Don’t think you are smarter than the market. It’s not a fair competition for you and you will lose way more than you will gain. Sometimes there are downward shocks, but there will be upward shocks too. Learn to control what you can by appointing someone who you know is well researched and will turn off the noise.

  • If you have a question on investments, please call 01872 222422 or email info@wwfp.net or visit us on www.wwfp.net
  • Peter McGahan is the Chief Executive Officer of Independent Financial Adviser Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.