Amid continuing market choppiness, Money Observer has gathered a range of tips from experts to help investors survive and thrive in volatile markets.
Our panel includes Patrick Connolly, financial planner at Chase de Vere; David Stubbs, global market strategist at JPMorgan; Jason Hollands, managing director of communications at Tilney Bestinvest, and Shaun Port, chief investment officer at Nutmeg.
DON'T SELL IN MARKET PANIC
David Stubbs: Because the single best days in the markets very often fall hard on the heels of the worst days as markets rebound from dramatic falls, this trap can be particularly vicious. In other words, selling when equities plunge can be a recipe for locking in losses. Focus on taking the emotion out of investing.
TAKE A MULTI-ASSET APPROACH
Patrick Connolly: Nobody can consistently predict which asset classes or sectors will perform the best, so don't try to be too clever. Spread your money across different assets such as equities, fixed interest, commercial property and cash.
You can do this by investing in a diversified range of investment funds or a single multi-asset fund. Some funds, such as Schroder Multi Manager Diversity, are currently positioned with the main aim of protecting capital, as the fund managers believe that investment markets are overvalued.
AVOID THE MORE ILLIQUID PARTS OF THE MARKET
Jason Hollands: In a bearish market environment, liquidity can quickly dry up - especially at the micro-cap end of the market and in Aim, which is littered with mining and oil exploration stocks. Likewise, we suggest avoiding parts of the high yield market that could be exposed to oil price weakness.
IGNORE THE NOISE
Shaun Port: There is a constant stream of commentary and speculation on the daily fluctuations in financial markets. This can be distracting and push investors to act irrationally and not in the best interests of their long-term investment goals. It is essential you stay focused on why you are investing and remember you are in it for the long term.
INVEST MORE, AND REGULARLY
PC: Despite the economic problems in different parts of the world, many companies continue to perform well, make consistent profits and have large amounts of cash on their balance sheets. It is now possible to buy these companies at a lower price than earlier in the summer.
Investing regular premiums rather than lump sums is a sensible way to invest during difficult economic times, as it negates the risk of market timing. Moreover, if investments fall then units are simply bought more cheaply next time, bringing down your average purchase cost.
BE WARY OF WITHDRAWALS IN LOW MARKETS
DS: If the markets have a few bad years at the start of your retirement, that means you're withdrawing assets precisely when your pot is worth less. This is dangerous because when the price of shares you hold is lower, more of them need to be sold in order to reach the required predetermined sum.
Unfortunately, most savers simply assume that if they predetermine a modest level of regular withdrawals, regardless of the state of the markets, they'll be able to carry on drawing from their pot indefinitely. The reality is that taking regular withdrawals in times of market stress can destroy the health of your pension pot.
CONSIDER ABSOLUTE RETURN FUNDS
PC: Most absolute return funds are designed to provide a positive return in all environments. This sounds ideal for those trying to protect their money, although most funds haven't demonstrated that they're able to do this consistently, with many having high correlation with stock markets.
The good news is that most absolute return funds will be able to provide investors with at least some protection and could potentially give better returns than cash.
FOCUS ON FUNDS WITH MORE UK EXPOSURE
JH: While the UK economy is unlikely to be immune from the effects of a protracted global slowdown, should that occur, funds with greater flexibility to pick stocks from across the full bandwidth of the UK equity market have more scope to own companies that are less exposed to the emerging markets and have domestic earnings resilience.
SEEK LOW FEES
SP: Investors must make sure their returns aren't eroded by high fees. Hidden charges and commissions can scupper long-term financial performance and, due to the compounding effect, make a huge difference in the long term.
It's important to know exactly what you're likely to be paying for the full duration of your investment before you buy. Remember to ask your provider about up-front charges, commission, management fees and charges for underlying investments.