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Saturday 20 September 2008
Financial turmoil: What should private investors do with their money?
Friday’s rally – the largest one-day rise ever – will not be repeated next week. Indeed, it is highly likely that smart City investors will take some profits on Monday. More in comments... View PDF
Financial turmoil: What should private investors do with their money?
By Harry Wallop 19 September 2008
With the stock market suffering one of its most turbulent weeks in history, we offer some advice to bruised and battered private shareholders.
The past five days have been historic ones and any private shareholder that has survived the week with their nerves intact should congratulate themselves.
The question is what next? Crucially, you should remember the old stock market adage: “It’s not timing the market that matters, it’s time in the market.”
And never has that been more clearly demonstrated than this week. To panic and exit the stock market now would not only incur substantial share-dealing charges and capital gains liabilities, but also will mean you miss out if the rally continues.
But will it? We are clearly heading for troubled economic times, possibly a full-blown recession. Banks, consumer goods companies, retailers, housebuilders are all going to suffer badly.
Investing in any of these companies seems a foolish prospect. However, it is worth remembering that the stock market brushed off the early 1990s recession with relative ease and carried on recovering from the 1987 Black Monday crash.
The FTSE 100 is starting to look cheap on pretty much any yardstick you care to measure it by. On Thursday, the index’s yield hit 4.6 per cent, climbing higher than the 4.4 yield on gilts for the first time since 2003.
In layman’s terms this means that the average dividend paid out by one of the FTSE 100 companies was offering a better rate of return (4.6 per cent) than the safest, most stable investment there is – a 10-year Government bond.
This is traditionally a classic “buy signal” and no-less than Anthony Bolton, considered one of Britain’s sagest investors, has said, “I feel we are entering the final stage of the bear market.”
We just might be near the bottom. This is all good news for long-suffering investors that have stuck with the market through thick and thin.
But what about those that have some money to invest now? Wait.
Friday’s rally – the largest one-day rise ever – will not be repeated next week. Indeed, it is highly likely that smart City investors will take some profits on Monday.
And the next few weeks and months will be very volatile while central bankers, politicians and regulators work out how to sort out the mess.
Only a brave investor would jump in right now, but after a few days they should consider it. For all those investors whose nerves are completely shredded, then perhaps you need to rethink whether the stock market is for you.
Investing is about improving the quality of your life, and if you were not able to sleep at night during this week you have to reassess whether stocks and shares are for you.
There are plenty of other investments that guarantee an income and a good night’s sleep – gilts, company bonds or money market funds are all good options.
Just don’t take it all out and put it under the mattress. The only person to make a return is your local cat burglar.
1 comment:
Financial turmoil: What should private investors do with their money?
By Harry Wallop
19 September 2008
With the stock market suffering one of its most turbulent weeks in history, we offer some advice to bruised and battered private shareholders.
The past five days have been historic ones and any private shareholder that has survived the week with their nerves intact should congratulate themselves.
The question is what next? Crucially, you should remember the old stock market adage: “It’s not timing the market that matters, it’s time in the market.”
And never has that been more clearly demonstrated than this week. To panic and exit the stock market now would not only incur substantial share-dealing charges and capital gains liabilities, but also will mean you miss out if the rally continues.
But will it? We are clearly heading for troubled economic times, possibly a full-blown recession. Banks, consumer goods companies, retailers, housebuilders are all going to suffer badly.
Investing in any of these companies seems a foolish prospect. However, it is worth remembering that the stock market brushed off the early 1990s recession with relative ease and carried on recovering from the 1987 Black Monday crash.
The FTSE 100 is starting to look cheap on pretty much any yardstick you care to measure it by. On Thursday, the index’s yield hit 4.6 per cent, climbing higher than the 4.4 yield on gilts for the first time since 2003.
In layman’s terms this means that the average dividend paid out by one of the FTSE 100 companies was offering a better rate of return (4.6 per cent) than the safest, most stable investment there is – a 10-year Government bond.
This is traditionally a classic “buy signal” and no-less than Anthony Bolton, considered one of Britain’s sagest investors, has said, “I feel we are entering the final stage of the bear market.”
We just might be near the bottom. This is all good news for long-suffering investors that have stuck with the market through thick and thin.
But what about those that have some money to invest now? Wait.
Friday’s rally – the largest one-day rise ever – will not be repeated next week. Indeed, it is highly likely that smart City investors will take some profits on Monday.
And the next few weeks and months will be very volatile while central bankers, politicians and regulators work out how to sort out the mess.
Only a brave investor would jump in right now, but after a few days they should consider it. For all those investors whose nerves are completely shredded, then perhaps you need to rethink whether the stock market is for you.
Investing is about improving the quality of your life, and if you were not able to sleep at night during this week you have to reassess whether stocks and shares are for you.
There are plenty of other investments that guarantee an income and a good night’s sleep – gilts, company bonds or money market funds are all good options.
Just don’t take it all out and put it under the mattress. The only person to make a return is your local cat burglar.
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