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Don’t wait for a stock market crash to plan ahead

August 2019


Tags: Investing Strategies

Over the past two weeks increased turbulence on global stock markets has led many market commentators to ruminate on the possibility that the decade plus long bull run will soon come to an end.

Commenting on the state of the market, Richard Pearson, Director at Selftrade, says: “The million-dollar questions remains, is the next market crash around the corner? A number of the warning signs are flashing red; inversion of the bond yield curve - seen by many as a recession indicator, weak GDP growth in Germany, and a continued gold rally. These movements could suggest that investors are hedging their bets for an equity slide.

“The issue that we have is increasing uncertainty for investors on a global scale. The US/China trade war has taken a bite out of global growth, Brexit uncertainty is impacting economic performance in the UK and Europe, and the projected pace of interest rate cuts from the Federal Reserve all have investors worried.

“It’s impossible to call the top of the market, but there are several steps investors can take to prepare their portfolios if they expect the market to turn”. 

 

  1. Review your portfolio now – Look at how well you have spread your investments both on a geographic and asset class basis. Have you got too much in riskier asset classes such as equities? And remember if you’re sitting on gains it is never wrong to realise some of those gains and re-invest in another stock or fund to help diversify your risk.
  1. Look for uncorrelated asset classes (assets that do not move in the same way as the stock market) – This is easier said than done and you need to do your research, but consider investing in assets such as Gold or Infrastructure.
  1. Drip feed your investments - If you’re sitting on a lump sum in cash that you’re considering investing then don’t put it all in one go. Timing the market is maddeningly difficult but regular investing or drip feeding into the stock market can help reduce the risk that a market fall reduces the initial amount you invested before you even get going.
  1. Active vs. passive - Whilst the active/passive debate continues the reality is that index trackers will only perform in line with benchmark indices. Therefore, if there is a sell-off in the markets, index trackers will fall in line. It is at times like these that active managers may earn their higher fees to outperform their benchmarks. However active managers are not miracle workers, and investors should be mindful that even the experts won’t buck the downward trend if and when it happens.
  1. Don’t panic! - If you are invested for the longer term then markets typically recover over time. Equity volatility tends to rise when stock prices fall. In uncertain times, it may be a good idea to adopt a defensive posture while staying fully invested in the equities markets. This can be achieved through the Low Volatility strategy, which targets an investment in stocks with low return volatility. This strategy may be particularly suited to those investors who are not required to adhere to any particular benchmarks and who wish to take cover from heightened volatility.

 

Areas you may want to consider:

 

*Most popular funds for Selftrade customers over the past twelve months, as of 19 August 2019.

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Selftrade does not provide investment advice. This article is the authors view and is not the view or opinion of Selftrade and Selftrade accepts no liability for any loss caused as a result of the use of this information. The opinions expressed are those of the author at the time of writing and should not be interpreted as investment advice.

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