On a journey into the unknown, sit tight

Despite the uncertainty on the world markets, Melanie Bien argues against selling shares

Whatever you do, don't panic and sell your shares. This is the message being impressed on investors across the world following the tragic events in New York and Washington last week.

Whatever you do, don't panic and sell your shares. This is the message being impressed on investors across the world following the tragic events in New York and Washington last week.

As news of the attacks on the World Trade Centre and the Pentagon filtered through, stock markets – already depressed – initially plunged into further chaos. The global economic slowdown has been pushing markets down for the past 18 months, starting with the US. After Tuesday's attacks, the markets reacted badly, with Tokyo falling to its lowest level for 17 years. The FTSE 100, which was trading at a three-year low last Monday when it slipped below the 5,000 mark, fell a further 5.7 per cent on Tuesday.

After that, the markets recovered slightly before slumping again on Friday. The FTSE posted its worst weekly decline – 6.2 per cent – since 1987. Some shares, such as those in insurance and defence, rallied as analysts argued that the former were priced down too much in the first instance while there will be much demand for the latter. Oil and gold, traditional defensive havens at times of crisis, also rose sharply. But oil shares have since retreated on the grounds that a slump in demand from the global air industry will lower the crude price in coming months.

Until Wall Street reopens, it will be hard to tell what will happen. It is expected that the New York Stock Exchange will open tomorrow; if shares plunge, as is widely predicted, this will affect confidence in other markets. And when the US seeks revenge for the attacks, it seems set to create further uncertainty. Economists also fear that the threat of recession that existed before the attack is likely to become reality; much will depend on US consumer confidence.

The problem is that nobody knows what is going to happen. "There is a very strong consensus that the US economy is going into recession," says Mark Dampier, head of research at independent financial adviser (IFA) Hargreaves Lansdown. "But I would question how much that had already been discounted in the market before Tuesday. The market was already heading downwards. We may see a fall of 10 or 15 per cent but there is evidence in history that after an initial crisis, markets do stabilise."

Mr Dampier believes selling shares now, when the market is low, is a bad move. "You need to be careful about selling. If you are right and the market goes down, say 10 per cent, it is likely it will bounce back up past where you got out before you realise it and have a chance to get back in again. If you have a balanced portfolio, why should you change things?"

Even with short-term uncertainty, the stock market remains the best place to invest, bringing better returns in the long run than government bonds or gilts, or cash stashed in a building society account.

"Over the next three to five years, equities should still provide good returns, and [we] believe markets will be significantly higher five years from now," says Craig Wetton, chief executive at IFA Chartwell. "It is for this reason that we urge clients to adopt the long view and avoid making any rash moves. While recent events are undoubtedly a setback, we have to focus on such long-term aims."

It is only when events stabilise that prices will settle. But in the meantime it is important that investors don't panic. In fact, although it may seem difficult to think about investing when lives have been lost, now is a buying opportunity rather than a selling one.

"Now is the time to buy and accumulate," says Ken Lowes, chairman of IFA Lowes Financial Management. "It might not happen overnight, you might suffer even further losses. But markets will turn and profits will be made. It is at the bottom of the market where the most secure profits are made, not the top. However, it is at the bottom where the right decision is harder because it can get lonely when many are saying you are doomed."

Although some market watchers have been suggesting a move into defensive stocks, some of these are already quite pricey. "Do you want to pile into a sector, such as pharmaceuticals, which is already expensive?" queries Mr Dampier. "If you have a lot in cash, there is a buying opportunity in the next couple of months, but you need to opt for really good, strong shares."

Mr Dampier argues that the equity income sector boasts companies with good balance sheets. He particularly likes Credit Suisse Monthly Income, ABN Amro Equity Income and Lion Trust Income; for investors looking for a fund with a broader base, he suggests the Foreign & Colonial investment trust. And whatever you do, don't forget American unit trusts. "If you want a balanced portfolio, you must have US exposure," he adds.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Arts and Entertainment
Attenborough with the primates
tvWhy BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
News
Kelly Osbourne will play a flight attendant in Sharknado 2
people
News
A bartender serves beers
news
Arts and Entertainment
Daniel Craig and Rory Kinnear film Spectre in London
film
Life and Style
The finale at Dolce and Gabbana autumn/winter 2015
fashion
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

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Jemma Gent: Management Accountant

    £230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

    Day In a Page

    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003
    Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

    Our woman in Beijing builds a new relationship

    Britain's first female ambassador to China intends to forge strong links with growing economic power
    Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

    Courage is rare. True humility is even rarer

    Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor