The headline in the "Your money" section of the Telegraph on June 16th read as follows "ISAs lose up to 25% in three months". The article then went on to record the roll of honour of the non performance and woes of very many well known highly rated funds. But not to worry. Wealth managers and Fund Managers are pleading for calm. So that's alright. Their key message is not to panic when you get your fund statements. Just swallow hard and keep focussed on the long term goal. This would be easier to do if one was sure that these same people had a significant amount of their own money invested in the funds that they managed.
The article then went on to say that the present investment climate is actually quite good. Company share prices are historically cheap. The Eurozone problems form a small percentage of the real worlds total economy. Finally America is set to ride in on a White Charger and rescue us all. Well perhaps this is true and perhaps its not. Who really knows? But sitting passively and waiting for the recovery would seem to be optimistic to say the least. Your fund may be in a sector that is not going to recover with the rest. I know that it is said that a rising tide floats all boats. But not ones that have become holed. They will require longer to recover and may spend some time under water first. Think about Mr Antony Bolton who has been waiting for his China fund to surface and he is a clever man.
Another statement frequently rolled out is "Missing the best days performance rather than the worst can have a serious adverse effect on your wealth." Well I also struggle with that as a universal truth. After all, simple arithmetic tells you that a 50% fall requires a 100% pick up to return to the same starting place. So perhaps missing out on the best and the worst days is not such a disaster. Maybe it's better not to try and forecast the top and bottom of markets but just be out when you realise they are falling, and then be back in again when it is obvious they are rising. Remember that this also gives you the chance to switch sectors and funds when you do return to the market should the numbers point in that direction. This approach does require you to have up to date numbers reflecting current market sentiment. Saltydog Investor supplies these numbers on a week by week basis.
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