As I write this, the FTSE 100 is crashing again. Which isn’t exactly surprising, if you’ve been watching the news. Due to the stock market crash, it could plunge below 5,000 at any moment, a level that would have been unthinkable just two months ago, when it was riding high at more than 7,500.
So what do you do when your portfolio has fallen by as much as a third? I’ll tell you what I’m doing. I’m looking the other way. There’s no way I want to log on to my online investment platform and check out the personal damage. Reading the financial pages is already painful enough.
I know this doesn’t sound heroic, but it isn’t daft. From an investment point of view, I would argue that turning your back during a stock market crash is a thoroughly sound way to behave.
Look beyond the stock market crash
Investing in stocks and shares is a long-term game. I’m still 15 years from retirement and I don’t plan to draw any money from my stock or fund holdings in that time, if I can possibly avoid it. I plan to leave it invested, and let time and compound interest work their magic.
I haven’t looked at my portfolio since the investors started to take the Covid-19 threat seriously, because I know I won’t like what I’m going to see. I would suggest many of you do the same.
There’s no point surveying the damage during the current stock market crash, because it might lead you to do something silly. Like panicking and selling up, thereby crystallising what are still only paper losses.
You need to get the balance right
My advice would be different if you need to draw money from your portfolio in the next few months. That money shouldn’t have been in the stock market anyway, you should only invest funds you won’t need for at least five years, preferably longer, to guard against times like these.
There’s another reason why I’m looking away. That’s because I think I have the balance of my savings broadly right. If I need short-term cash in a hurry, I have a healthy balance of funds sitting in an offset mortgage. I can simply dip into that. It’s a tracker, so the interest rate is falling.
I have quite an aggressive portfolio, with most of my money in shares. Others, wisely, will balance their equities with cash, bonds, gold and property, which don’t always correlate with stock markets, and may have a lower risk profile. Right now, they’ll be patting themselves on the back, because they won’t have felt the full force of the FTSE 100’s plunge. That’s the joy of diversification.
I’m logging on to my online platform for one reason, though. With share prices down a third, I think we are nearing the buying opportunity of a lifetime. While shares are likely to fall further, when the crisis is over, we’re likely to see an almighty rally.
When that happens, I might finally take a sneak look at my portfolio again.