Why bad headlines frighten investors

The past few weeks of news headlines have been filled with truly shocking reports. War, civil unrest and growing tension between countries create inevitable fear for those innocently affected and for those who watch the news from afar.

There has always been a direct connection between human emotion and investing. This means that when the world is at ill ease, behaviour towards how we manage our money can change.

Whilst it is sensible to make investment decisions based on research and tolerance to taking risk, inevitably there is an element of human instinct and emotion which can interfere. Money provides us with physical and emotional security and when there is a risk to losing that protection, human instinct can cause us to react in an illogical way.

When bad news hits the headlines, the stock market can often react negatively, but as calm is restored, it typically recovers. It is at these times that we should trust the experience of fund managers to be holding a diverse range of investment funds to manage the rise and fall of market fluctuations, known as volatility. Those who choose cautious investment funds are likely to experience less highs and lows in their investment value, compared to those who choose very risky investments in order to seek greater returns.

In fact in times of volatility, professional investors can reap rewards for their clients buying stocks when prices drop and selling when they are high.

When investing, it is an important point to understand your own tolerance to taking investment risk and using this as your guide when making decision. This approach means that when the newspaper headlines are not positive, you don’t allow your instincts to take over your financial planning.

How to better manage investment risk:

1. If you are not an experienced and knowledgeable investor, then don’t try and make decisions yourself. A good Wealth Planner will help you to define a level of risk that you are comfortable with and that matches your needs, they will use this as the basis to make recommendations.

2. Avoid being drawn in by the hype. Whether it is the latest favoured country to invest in, the headline grabbing fund manager or a deal which promises great returns, tune out of the conversation. Decisions regarding how you invest should only fit alongside your existing plans and risk profile; ‘wild card’ investing is unlikely to help you reach your long-term financial goals.

3. Don’t make knee jerk investment decisions. There have been many reasons why the stock market has both risen and fallen over the years. If you see your investments fall, speak to your wealth planner before acting, as long term investments are expected to fluctuate in value. Don’t forget, volatility can be a good thing when investing.

4. Whatever your approach is to taking investment risk, use your NISA allowance each year. This tax year (2014/5) you can put up to £15,000 into a NISA and any gains you receive are not subject to further tax.

5. If you have large sums of money held in cash talk to your wealth planner about reviewing the interest being paid on this account. It may be that inflation (the rise in the cost of living) is outstripping any interest being paid and eroding the value of your savings in real terms. There may be low risk alternative investment solutions which you can consider for part of your cash savings and may provide you greater returns.

To find out more about Sanlam’s approach to risk based investments get in touch with your Wealth Planner.

If you currently do not have a Wealth Planner, we would be delighted to help, please emailletstalk@sanlam.co.uk

This article is for information purposes and should not be treated as advice. Individual circumstances should always be considered prior to purchasing any financial products. For further information please contact your Wealth Planner.

Sanlam is a trading name of Sanlam Wealth Planning UK Ltd (Reg. in England 3879955) and English Mutual Ltd (Reg. in England 6685913). English Mutual Ltd is an appointed representative of Sanlam Wealth Planning UK Ltd which is authorised and regulated by the Financial Conduct Authority.