Markets are falling – here's what investors should do

Sam Benstead
·3 min read
Stock markets
Stock markets

Stock markets are falling everywhere. British, American and European shares are all 5pc lower this week. Panic has set in across trading floors around the world, and investors may be feeling similar. However, there are steps they can take to limit the damage to their savings.

This change in sentiment was caused by new national lockdown measures in France and Germany, introduced to stem rising coronavirus cases. 

Cases have been on the up since September, but investors thought strict national lockdowns would not be introduced as they were in March. They were wrong and that is being reflected in share prices. What will happen next and what should investors do?

Will markets fall further?

Rising cases are not directly spooking markets but the possibility of more lockdown measures and their effect on employment and company profits.

Deaths in Britain are rising as they are in Germany and France. Prime Minister Boris Johnson has not ruled out a national lockdown and there are calls from scientific advisers and from the opposition Labour politicians for a two-week “circuit breaker”.

The key question for investors is whether Mr Johnson will follow the lead of his peers in Paris and Berlin and enforce similar measures. If he does, stocks will fall further, if he does not, they could rally. 

Laith Khalif, of fund shop AJ Bell, said: "It depends on politics, which is notoriously hard to predict. Government stimulus measures saved the economy, but lockdowns may kill it. We just don't know."

In Britain, the most-sold shares this week were companies vulnerable to lockdowns. Cineworld has fallen 15pc, cruise operator Carnival 20pc and high-street electronics chain Dixons Carphone 10pc.

Airlines also suffered, with British Airways-owner International Consolidated Airlines plunging 15pc, EasyJet 9pc and RyanAir 12pc. On the other hand, online grocer Ocado’s shares bucked the trend and rose 1.5pc.

What should investors do?

No matter how scary recent developments are, for investors with a long time frame of 10 years or more, the recent market moves should not be a concern. 

Mr Khalif advised investors to consider monthly investing. Those that spread out investments will be buying at a range of different prices and will smooth out their returns, so goes the "pound cost averaging" theory. 

"Over 10 or 20 years, choppiness in stock markets won't register. Ignore the noise and stick to your long-term goals by regularly investing. Investors that want to try and time the market should have a separate pot of money to play, rather than use their core savings pot," he said. 

For those with a mix of assets, they should remember that the split of their portfolio will have changed. If you had a 50-50 split between bonds and stocks, the fall in stock markets will decrease the amount held in companies and increase the allocation to bonds.

For example, if you had £1,000, with £500 in bonds and £500 in stocks, and the value of your stocks fall 10pc, you now have £500 in bonds and £450 in stocks.

To ensure the portfolio remains balanced, investors would need to sell some bonds and buy stocks. This is an option for those wanting to take a tentative approach to buying back into the stock market and take advantage of cheaper share prices.