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Wow's reaction to stock market turmoil

August 08, 2011 at 8:44 AM

Last week saw reasonably large falls in pretty much every stock market across the globe, and we know that this can be a worrying time for investors & business owners alike. We can’t predict what will happen this week, but if you want to know Wow’s take on what is going on and how we can potentially help you (as you know, we do much more than just crunch the numbers), read on....


The background

The background to this current uncertainty & volatility is primarily focused on sovereign debt (what is owed by governments) and their ability to repay what they owe. The main areas of uncertainty at present are a) which countries are likely to default or have their credit rating down-graded and b) what then happens if either of these situations do occur. In addition, there are concerns that the US economy may be weaker than expected too, which may cause problems globally. 

The downgrading of America’s credit rating for the first time in history over the weekend is also likely to have an impact on confidence, as investors are unclear as to the effect this will have on the wider global economy.

Financial markets really do not like uncertainty and this is why we have seen such volatility of late. This is never helped by the media-fuelled hysteria that often accompanies these bouts of volatility and this invariably causes over-reaction to every piece of news or data (good or bad).  That could well be what we are experiencing currently.


Your investments

They are going to be affected one way or another, but it is really important to ensure you are invested in the right way at times like these.  If you are over-exposed to one particular asset class or geographic region then you are probably taking more risk than someone who has their investments spread across different assets, like stocks & shares, bonds, property and commodities.

Most people are investing for the long-term – possibly for the rest of their lives in the case of pension investments – so sharp fluctuations should often be viewed pragmatically. 


What about cash?

If you are really uncomfortable with the current volatility then cash or cash funds could be a solution – however don’t be fooled into thinking cash is a completely safe haven. Many people fail to factor inflation into the equation, so if the rate of interest you earn on these investments is less than the rate of inflation (which it almost certainly will be at the moment) then you are guaranteeing that your investments will be effectively worth less over time.

Therefore even though the nominal value might not go down, there are still risks associated with cash that should not be under-estimated.

 
What to do about all this?

You won’t be able to affect the financial markets or what will happen in the global economy – and, sadly, neither can we. However, there are some things that are in our control and we suggest everyone makes sure they do the following:

  • Know exactly where your pension and investment funds are invested.
  • Ensure that your investments are suitably diversified and regularly monitored.
  • Do not be blinded by single asset classes and fall for old sayings like “cash is king” or “my property is my pension” – this kind of attitude is generally more risky than having a well balanced portfolio of assets – even if some assets occasionally fall in value.
  • Be as tax efficient as possible at all times – this really does make a big difference.
  • Understand that investing is for the long term and not about “quick wins”.
  • Don’t believe the media hype and make rash decisions on what you read in the Sunday papers or hear down the pub!


How can Wow help?

We help people do all of the above and put proper investment plans in place that will ideally tick all of these boxes.

We are offering complimentary investment reviews to help you in these uncertain times. We will analyse your existing ISA & Pension funds, so you know exactly where you stand.  We will also let you know how “risky” your investments are and offer some suggestions as to how you can potentially reduce the risk in your portfolios.

If you would like to take advantage of this, please call 0845 201 1580 or e-mail info@thewowcompany.com.

 

Some final words of encouragement from Warren Buffet 

“Be fearful when others are greedy, and be greedy when others are fearful" 



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