David Prosser: Stay calm, like Buffett the long-termer

Should you pull your money out of the stock market, now that shares have given up pretty much all of the gains they've made since the start of the year? Well, while I'm finding it difficult to get a clear picture from the investment crystal ball, the answer is almost certainly no - unless you shouldn't have bought into shares in the first place.

As my colleague Jonathan Davis explains much more eloquently on page 15, the key to successful stock market investment is to set out a clear strategy and to allocate your assets accordingly. If you've done that, short-term volatility - sharp price rises or falls - should not be allowed to blow you off course. Let's put it another way. Investing in the stock market is a means to an end, rather than an end in itself. The only reason to hold money in shares is that you have decided this is a sensible way to achieve a future financial objective - either a specific need or for a general rainy-day fund.

If that objective is less than five years' hence, the stock market is the wrong way to go about achieving it. There's just too much risk of short-term fluctuations in share prices jeopardising your plans. If, on the other hand, your goals remain some way off, this week's disappointments - or, for that matter, the highs we hit in March and April - are pretty irrelevant.

Market timing is a mug's game. Warren Buffett, the world's best-known - and richest - investor, last week reported another golden year for his clients. He has made his money by choosing shares carefully and then holding them for the super long-term. By all means review the investments you have chosen regularly, but don't be fooled into thinking you can trade your way out of trouble.

One final thought. If you invest in the stock market through the regular savings plans on offer from many fund management companies - an approach often championed by Save & Spend - you have even more reason not to be unnerved by the events of this week. Thanks to a statistical quirk known as pound-cost averaging, your monthly investments are buying more stock market exposure for your money, boosting future potential returns.

* One reason why stock markets have been falling is that investors expect interest rates to rise, both here and in the US. That is good news for bank and building society savers. In a rising interest-rate environment, the first accounts to start paying more are fixed-rate products, which are priced in line with expectations about what will happen in the future.

So it is that the best deals available to savers right now are in the fixed-rate market. Top of the tree is Dunfermline Building Society's offer of 5.55 per cent interest, a rate that is fixed until the end of July 2009.

If you can afford to tie up your cash, such products are worth considering. But don't assume that all savings accounts will rise with the tide - and missing out could be painful.

Inflation has increased from 2.4 to 2.6 per cent over the past month. That means a basic-rate taxpayer now needs to earn at least 3.25 per cent before tax in order to earn a positive real rate of return on their cash.

* Savers' gains, of course, are borrowers' losses. Back in January, the cheapest two-year fixed-rate mortgage was priced at around 4.2 per cent. Today, the best deal costs 4.5 per cent.

However, while some analysts have now begun recommending tracker mortgages as better value than fixes, I think that misses the point. A tracker deal, where what you pay moves up and down in line with the Bank of England base rate, may well be cheaper today. But the appeal of a fixed rate is not its cost - it's the certainty it provides about the cost of future repayments.

In a world where interest rates are expected to rise, fixed-rate deals are more valuable, even at a higher price than four months ago. If you're at all worried about coping with rising interest rates, a fix remains the right deal for you.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Arts and Entertainment
Brendan O'Carroll as Agnes Brown in the 2014 Mrs Brown's Boys Christmas special
tvCould Mrs Brown's Boys have taken lead for second year?
Arts and Entertainment
Jack O'Connell stars as Louis Zamperini in Angelina Jolie's Unbroken
film review... even if Jack O'Connell is excellent
News
news
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
PROMOTED VIDEO
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
Life and Style
fashion
Arts and Entertainment
Japanese artist Megumi Igarashi showing a small mascot shaped like a vagina
art
News
i100
Arts and Entertainment
tvChristmas special reviewed
Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
Arts and Entertainment
tv
News
The Queen delivers her Christmas message
newsTwitter reacts to Her Majesty's Christmas Message
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Selby Jennings: Oil Operations

    Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

    The Jenrick Group: Night Shift Operations Manager

    £43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

    SThree: Trainee Recruitment Consultant - LONDON

    £20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

    Day In a Page

    A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

    Christmas without hope

    Gaza fears grow that conflict with Israel will soon reignite
    After 150 years, you can finally visit the grisliest museum in the country

    The 'Black Museum'

    After 150 years, you can finally visit Britain's grisliest museum
    No ho-ho-hos with Nick Frost's badass Santa

    No ho-ho-hos with Nick Frost's badass Santa

    Doctor Who Christmas Special TV review
    Chilly Christmas: Swimmers take festive dip for charity

    Chilly Christmas

    Swimmers dive into freezing British waters for charity
    Veterans' hostel 'overwhelmed by kindness' for festive dinner

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

    'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

    Yazidi girls killing themselves to escape rape and imprisonment
    Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

    Ed Balls interview

    'If I think about the deficit when I'm playing the piano, it all goes wrong'
    He's behind you, dude!

    US stars in UK panto

    From David Hasselhoff to Jerry Hall
    Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

    Grace Dent's Christmas Quiz

    What are you – a festive curmudgeon or top of the tree?
    Nasa planning to build cloud cities in airships above Venus

    Nasa planning to build cloud cities in airships above Venus

    Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
    Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

    Clocks, rifles, swords, frogmen’s uniforms

    Surrounded by high-rise flats is a little house filled with Lebanon’s history
    Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

    Four months after the bombardment, Gaza’s wounds are yet to heal

    Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
    Gastric surgery: Is it really the answer to the UK's obesity epidemic?

    Is gastric surgery really the answer to the UK's obesity epidemic?

    Critics argue that it’s crazy to operate on healthy people just to stop them eating
    Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

    Homeless Veterans appeal: Christmas charity auction

    Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
    Pantomime rings the changes to welcome autistic theatre-goers

    Autism-friendly theatre

    Pantomime leads the pack in quest to welcome all