Since mid-May 2018, the FTSE All-Share has lost just under 600 points, a decline of around 14%. While this isn’t bear market territory (a drop of 20%, or more) it’s not far from it, and we could see further declines in 2019.
That said, it’s impossible to try to predict what the market will do over the next 12 months, but it’s always sensible to prepare for the worst.
With that being the case, here are the five moves I’m going to make if the market plunges this year.
Tax-free
The first part of my strategy is to make the most of my tax-free allowances for the year. This includes topping up my ISA and Lifetime ISA, which comes with the added benefit of a £1,000 government bonus if you contribute £4,000.
I’m also planning to contribute as much as possible to my SIPP. These contributions will also be topped up by government cash, giving me more money to invest in the market at the best possible time (when prices are low and yields are high).
Go shopping in the sales
My next move will be to seek out what I believe are the most oversold stocks on the market and, in the words of Warren Buffett, “be greedy when others are fearful.” However, it can be difficult to press the ‘buy’ button when it looks as if the world’s collapsing around you. This is why it’s essential to plan ahead. I have a list of stocks I want to buy already prepared, which should allow me to act quickly when the time comes.
Average in
Several studies have shown that it’s generally impossible to pick the bottom of a bear market. Most of the time, investors are either too early or too late when they decide to dip a toe in.
My strategy is to average in, buying shares steadily over a number of days to try and get the best prices on offer. This is also a sound tactic for investors who want to use index funds. By using this strategy of pound/cost averaging, you can get the most bang for your buck without having to spend too much time watching the market.
Hold on tight
As mentioned, I already have a list of stocks I want to buy if the market plunges in 2019. This is just part of my strategy to help me focus on what matters when it comes to investing, namely company fundamentals.
I know the best way to ride out market volatility is to hold on tight and concentrate on those company fundamentals. Business conditions don’t change overnight in the same way stock prices do, and this is important to keep in mind in all market environments.
To be a successful investor over the long term, you need to ignore market noise and concentrate your time and effort on company fundamentals.
Go on holiday
The last move I’m going to make if the market plunges in 2019 is to take a break. I already have my game plan in place, so there’s no need to keep watching the market. If I do, I could end up making a silly mistake. So, I’m going to stick to the plan, turn off the screen, and walk away.