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To say that the stock market has been volatile lately is an understatement. The FTSE (“footsie”), as it’s commonly known started life in January 1984 with a base level of 1,000 and peaked at an all time high of 6,950 on 30th December 1999. Since that high point it has fallen back below 4,000 and several times been above 6,000. At the time of writing, it stood at 5,130.
This pattern of increased volatility is mirrored by all the major stock markets around the world. With the current debt crisis affecting some of the European countries, it is possible that this pattern will continue for some time. This has meant that returns from investments linked to stock markets (both in the UK and abroad) have been uncertain and many investors have become increasingly nervous.
So should you put all your money in the building society or bank? It will be safe, however whether you’ll make a real return on your money after inflation, is another matter. Again at the time of writing, the best easy access account for a deposit of £1,000 was paying 3.15% but if you’re a basic rate taxpayer, that equates to just 2.52%. With UK inflation currently in excess of 4% then there’s a significant risk that capital placed on deposit will decline in real terms.
Some investors are understandably worried by this combination of volatility and low rates of interest. But it’s important to remember that it hasn’t all been bad news. Gains have been made in markets such as the Far East, Latin America and Eastern Europe over the past few years, although as we know, past performance is not a guide to what may happen in the future.
All investment is a balance of risk and reward and it is important to determine the level of risk that is acceptable to you. Some investors are naturally cautious; some are prepared to be more adventurous in the hope of a greater return. But even if you are looking for higher returns, a good financial adviser will still build in some ‘safety-first’ factors – for example, making sure money is spread across a wide range of assets such as stocks and shares in the UK and worldwide, government and corporate bonds and property.
The key is to create a portfolio ‘for all seasons’.  One that doesn’t have out and out performance as a goal (that often comes with added volatility), but one that’s designed to provide the long term returns you need to create or maintain your desired lifestyle and allows you to sleep at night!
It’s important to review your investments regularly with your adviser so that they can be kept on track to meet your original goals.
If you would like to discuss your investments, or have any concerns about the current market volatility, then please don’t hesitate to contact us.
*Sources on request

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