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This year’s stock market crash and the woes afflicting the UK have made investors fearful. It could pay to get greedy instead.
Now is probably not the time to panic and dump your investments, unless you urgently need the cash. Investors who do that could be selling at the worst possible time.
Brave investors should consider gritting their teeth and buying more shares and bonds instead.
That strategy will not be right for everyone, but investing after prices have crashed can be the perfect long-term strategy.
It’s like going shopping in the sales. Suddenly, shares and bonds are trading at discount prices, with bargains everywhere.
It makes a lot more sense than piling in when markets are flying and everything is overvalued as investors bid prices higher and higher.
Global stock markets have been savaged in this troubled year, due to post-Covid supply chain shortages, war in Ukraine and rocketing energy prices. The UK’s political troubles haven’t helped.
But what really scares investors is that central bankers, led by the all powerful US Federal Reserve, are hellbent on hiking interest rates to curb inflation.
Higher borrowing costs will squeeze the life out of the economy and possibly tip us all into recession.
You’d have to be crazy to part with your money at a time like this, wouldn’t you? The answer for most people is of course, yes.
It would be a daft thing to do.
Buying shares today is risky. Markets could crash further, and you’ll lose even more money. Most people can’t afford it anyway, as the cost of living rages.
They have more immediate uses for their money, such as paying food and fuel bills, and keeping a roof over their heads.
Yet not everyone is in that position.
Millions of workers are looking to build wealth for their retirement, by investing in personal pensions or Stocks & Shares Isas.
Many will have cash to spare today but are understandably fearful.
Yet investing today could be one of the best financial decisions they ever make.
New York’s benchmark S&P 500 index of top stocks is down 24.56 percent year-to-date.
Tech giants such as Amazon, Tesla and Netflix have taken a battering after years of stellar returns.
To the surprise of many, the UK’s very own FTSE 100 has fared better. Yet it has still fallen 8.46 percent, with the bulk of that drop in the last month as Prime Minister Liz Truss’s troubles intensify.
Government bond markets have crashed by around 20 percent, an astonishing collapse for a supposed safe haven.
In other word, it’s sale time.
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US investment guru Warren Buffett famously said that wise investors should be “fearful when others are greedy, and greedy when others are fearful”.
Investors are fearful today, so now could be the perfect time to get greedy. But only if you are willing to be patient.
Nobody should invest in shares unless they plan to hold their money there for at least five years, and ideally much longer.
Over such a lengthy timeframe, markets have plenty of time to recover from short-term shocks like the one we face right now.
Also, the dividends companies pay to shareholders have more time to compound and grow.
If you take the long-term view, it doesn’t matter if markets fall again after you invest. History shows stock markets always recover, given time.
Alternatively, spread your risk by dripping feed money into your pension or ISA, taking advantage of any future dips.
Markets are forward looking and usually recover BEFORE the economy pulls out of recession, rather than afterwards.
If you wait until today’s crisis is over, the opportunity may have passed.
It’s not for everyone, though. Assess your attitude to risk. Make sure you have cash savings to cover essential spending. Take more care as you get older, as time is no longer on your side.
Then decide whether it’s time for you to be fearful, or greedy.
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