View more on these topics

Look to the long term

I have an investment portfolio of mainly equity-based unit trusts, Peps and Isas. Given the recent stockmarket crash, should I keep these funds?

The answer depends as much on the kind of person you are as much as it does on the facts. Run this little test:

Are you generally pessimistic?

Are you very risk averse by nature?

Are you more concerned about not losing any more money on your investments than making money from today?

Have you been checking the unit prices of your investments more frequently than monthly?

Are you going to need the cash proceeds within the next year?

If you have answered yes to any of these questions, then equity-based investments may no longer be right for you.

There is no doubt that the level of stockmarket volatility in recent years is significantly higher than in the past. It is no longer headline news when the FTSE100 or the Dow rises or falls by 50 to 100 points.

In fact, it is now not at all uncommon for these markets to rise and fall (or vice versa) by such amounts on consecutive days. Stockmarket investing through collective investments such as unit trusts, Peps and Isas should be considered as a long-term commitment.

If you invest in them short-term, you are playing with fire. If you are keeping a daily check on unit prices, you have probably had too many sleepless nights recently.

However, if your intention was to hold these investments long-term – and you can put things in perspective – then you may be able to sleep a little more easily without making significant changes to your portfolio.

We should therefore try to put the recent stockmarket events into an historical context. The terrorist attack on the September 11 caused a suspension of trading on the New York Stock Exchange. When it reopened on September 17 we saw a 7 per cent fall in the DowJones Industrial Average.

To put the fall of the Dow into context – it fell by 22 per cent in the stockmarket crash of October 19, 1987. However, we have been in a two-year bear market which has seen stockmarkets in the UK and the US fall by around 35 per cent from their peak.

Serious stuff – so if you are really thinking about getting out of your equity-based investments, you may have left it a little too late.

I guess that you are really asking the big question – where will markets go from here? As Greenspan said soon after the attacks on the US: “Nobody has the capacity to fathom fully how the tragedy of September 11 will play out.”

Several weeks have passed since then but, in my view, Greenspan&#39s words still ring true. If you look back over the last 20 years, it has been external factors that have upset the market more than any cyclical economic change. So let me offer you a long view.

Prior to the attack, US economic activity indicators were weakening and warning of a possible recession – ringing alarm bells across the world&#39s economies and stockmarkets. The events of the September 11 simply made things worse.

However, it is important to recognise the strenuous efforts that have been made during this calendar year by central bankers to avoid a deep and lasting recession by cutting interest rates to stimulate the world economy and consumer spending. The determination of the US Federal Reserve in this respect should not be underestimated.

It is not widely recognised that during 2001 US interest rates have been cut by the US Federal Reserve nine times, reducing the rate from 6.5 per cent to 2.5 per cent. The UK has followed a similar pattern – cutting rates five times from 7 per cent to 4.5 per cent.

Interest rates in continental Europe have also fallen, in a rather different pattern, from 4.75 per cent to 3.75 per cent. The percentage reductions are astounding – and the pace breathtaking and historic.

Several of these interest rate cuts had taken place prior to September 11. Without the events of that day, we would probably now have been starting to see turning points in the US economy.

These will now be delayed – but maybe not for too long. President Bush is likely to gain approval for a tax and spending package in excess of $100bn which, coupled with the interest rate cuts of 2001, is likely to push the US economy back into growth in the first half of 2002. Stockmarkets will recognise this and reflect the improving, more positive climate.

Best advice to you is to try to remain calm through the current uncertainty and volatility. The darkest hours are just before dawn.


IFAP appoints marketing manager

IFA Promotion has appointed Karen Barrett as marketing manager to co-ordinate its advertising, website and direct marketing campaigns highlighting the benefits of independent financial advice.Barrett joins from Abbey National where she spent 18 months working on integrated campaigns for the bank and Safeway. She implemented programmes for the Abbey National cash Isa and Safeway savings […]

Omam set to offer UK mid-250 fund

Old Mutual Asset Managers is planning to offer a new UK mid-250 fund in February.The fund will combine the skills of small-cap star Ashton Bradbury and newly recruited UK growth manager Richard Moore, who joined Omam from Singer & Friedlander at the end of last month.It will invest in a tight portfolio of around 50 […]

A&L and L&G launch first joint product

Alliance & Leicester is launching a balanced savings and investment plan from Legal & General on A&L’s website. The plan is an A&L fixed rate bond paying an enhanced rate of interest, together with an L&G investment bond. This is the first joint product to be made available since their partnership was announced earlier this […]

Inside edge

There is more to Raising Standards than acquiring a new logo. History is full of examples of those who led the way in their field but were ridiculed for their beliefs or achievements during their lifetime.The UK financial services industry is peppered with examples. Given that the industry is frequently charged with being conservative and […]

Time to stop the salami slicing on tax relief

Steve Webb  – Director of Policy and External Communications As the Autumn Statement approaches, Steve Webb calls for the Government to stop tinkering with tax relief. Twice a year, in the run-up to the Spring Budget and the Autumn Statement, we face a torrent of speculation as to what changes the Chancellor might make to […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm