If you have been watching the news in the past few days you will no doubt have seen that global stock markets are suffering over concerns about the Chinese economy, which is now a major factor of global growth.
The FTSE 100 has fallen around 4% in today’s trading, bringing the index to around 5900, a similar level to December 2014 which followed the collapse of the oil price.
How might this affect investment portfolios? It is rare that clients are fully invested in the markets, with lower risk investments such as commercial property and “fixed interest securities” (lending money to governments and multi-national companies) being held alongside equities. A typical portfolio may hold 40-60% stocks & shares, which generally consist of a diverse range of UK and international holdings to lessen the impact of any single stock market falling.
We have also been steadily trimming exposure to Asia and the Emerging Markets in the past year, with cautious investors holding very little. More adventurous investors have some Asian holdings but generally expect more volatility in the expectation of higher long-term returns. The portfolios overall are positioned fairly cautiously reflecting our views on world events.
It may sound glib, but investment losses only occur once assets are sold. If there is a short-term need for large sums of money from investments then market conditions like this can cause problems, but if the funds are invested for the long-term events like those we are currently experiencing start to become background noise. If the original reasons for investing are still present then the sensible thing to do is usually hold on tight and try not to worry too much.
Hopefully the following picture provides some comfort to offset the panic that the newspapers are aiming for!
