As a long-term investor, I do not monitor the overall value of my Stocks and Shares ISA on a regular basis. I hope that by buying shares in great companies at attractive prices, my ISA will grow in value over time even if its valuation jumps about in the short term.
But sometimes it can be distracting to see that the current valuation is down sharply. In such a situation, here are three practical steps I take.
1. Keep calm
Seeing a large drop in my ISA valuation can be alarming. If one is hoping to use the funds from the ISA for a future plan like education costs or helping retirement planning, it may cause worry.
But it is a fact of life that the the stock market moves around – sometimes in ways that many investors do not appreciate. That is just part of owning shares, especially over the course of decades. Reacting in a panicked way could make things worse, by leading to hasty moves that we may later regret.
That is why, whenever the value of my Stocks and Shares ISA plummets, I try to focus on staying calm and making rational decisions.
2. Revisiting the investment case
When an ISA falls in value, that is often led by several shares. Even if every share I own is worth less than before, it may be the case that some of them have fallen dramatically while for others the decline is less severe. For example, in my Stocks and Shares ISA right now, I can see that S4 Capital and Renalytix have both lost more than half of their value in the past 12 months. That has an outsized impact on the total value of my ISA compared to shares that have moved much more modestly.
Such a huge fall may be for several reasons. Perhaps the shares were simply very overvalued before. Or maybe the outlook for a business has deteriorated significantly, for example because of a change in customer demand or the appearance of a new competitor. Renalytix’s cash burn has scared investors, while the prospect of reduced spending by some advertisers could hurt revenue growth rates at S4.
As an investor I think it is vital to be honest with myself. I need to look forward and ask myself whether I now see a company’s share price as good value, given how I see its business prospects now. If I do not, I may sell my existing shares at a loss. That can be painful. But if I think a share remains overvalued even after a steep fall, I could end up seeing it fall even further.
3. Buying in my Stocks and Shares ISA
But in other cases, the price has fallen and looks like good value to me, as I continue to see the prospects for the business as I did before.
In such a case, I would consider buying more of the shares for my Stocks and Shares ISA. When a price keeps getting lower amid market volatility, it can take guts to keep investing. But sometimes I do just that, although I always make sure my ISA overall remains diversified.