The coronavirus is shaking the world. Yesterday saw what has been called the fastest global stock market correction in history. The S&P 500 alone fell more than 10% in just six trading sessions, including a drop of 4.4% on Thursday.
The FTSE 100 is also deep in correction territory after hitting its lowest level in a year. It’s down another 4% this morning to stand at around 6,500, a drop of 15% from its mid-January high of 7,674.
Panic has taken over. Tragically, COVID-19 is potentially life-shattering for those directly affected, and threatens to wreak havoc on the global economy, as countries close factories, ban travel, and postpone major sporting events. Globally, around £3trn has been wiped off share prices.
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But the first thing private investors should do is keep a cool head. Ok, the headlines are frightening, but please don’t make rash decisions, such as selling all the holdings in your Stocks and Shares ISA. That may seem a strange thing to say, given that stock markets are likely to fall further, but this standard investment advice holds true.
Invest for the long term
If you sell now, you’re locking in your current losses. This means you’ll not benefit when stock markets recovers. Also, you face a tricky choice, such as when exactly to buy back into the market. The chances are you’ll call it wrong, because nobody can accurately time markets.
Crucially, you’ll miss out on all your dividends while out of the market. If you hold tight and keep reinvesting these payouts for growth, they’ll pick up more stock, or fund units, than before, at today’s lower price. When the recovery comes, they’ll be worth more as a result. Current volatility could work in your favour.
If you’re making a regular monthly investment into a Stocks and Shares ISA, or self-invested personal pension (SIPP), then keep it going. This is where regular investing comes into its own, as you pick up more stock at today’s depleted prices.
It’s a personal decision
If you need your money in the next few months, then it shouldn’t have been in the market in the first place. You should only invest money you will not need for five years, and ideally longer, as then you can afford to ignore nasty moments like this.
Those who are retired and living off their investment income, say, through income drawdown, also need to be more cautious, to make sure they still have enough money to live on.
For everyone else, the big question is whether you should take this as a buying opportunity. Clearly, it is. If there was ever a time to be greedy when others are fearful, to paraphrase billionaire investor Warren Buffett, this is it.
Again, though, stay calm and think clearly. This bear market probably isn’t over yet. So brush up your watchlist of top FTSE 100 stocks. It will come in handy over the turbulent days ahead.
