It is a sad day for the British stock market with the discovery of Omicron, a variant of the COVID-19 virus, which wiped out £72billion in value of stock across the world in a single day. It is a testing time for many new investors in Britain who had invested in stocks and shares during the lockdown due to the pandemic. Figures reported from Lloyds Bank revealed that one out of ten started to invest as the pandemic began. Stocks and shares were the most preferred investment.
Managing Director of Halifax Share Dealing, Manuel Pardavila-Gonzalez, said that many invested in the travel companies, the most popular sector during the lockdown. However, now with the discovery of the Omicron, there is ever-growing fear that these investments might take a blow.
Chief Officer at Investment platform Wealthify, David Semmems, said that it is quite unnerving investing in the market during uncertain times from a new investor perspective. He further added that due to the new strain of coronavirus, Omicron, very little is known about the impact exerted on both from the standpoint of health and the economic point of view. Even the optimistic experts reveal that it will take a long time to understand Omicron’s impact on society, and the investors have no choice but to see through the market volatility.
So the question arises for the investor: Should they sell off their investments and look for something safer to invest in, or should they learn to hold on to their investments. Investors understand the rise and fall of investment is a part of life. This understanding is based on a series of warnings before investing in the market for the first time.
However, as an investor, the knowledge of the threat that the investment price might go down can be very bothersome. According to the experts, this mindset is called ‘loss aversion bias,’ where the loss is double the experience of gains in the market. The chances of making a mistake run higher when the investor feels that the investment is threatened, thus investing in a wrong stock or exiting the market due to the price of the investment being low compared to the price when the investor had entered the market. So there is a gamble for the investor, whether to continue with the same investment or opt-out and invest in a safe savings account and lose money over time due to inflation.
David Semmens further said that the key success is getting over market volatility as fluctuations occur throughout the investment journey. A long-term investment is an excellent way to approach.
The best way to understand the volatility of the share prices is to observe and understand how the market sentiment moves. Most of the investment recovered after witnessing a heavy fall in March 2020 on the onset of coronavirus. Market research has proven that equities beat cash over the long term despite regular market fluctuations.
The Barclays Equity Gilt Study has revealed data from the past 119 years that shares have outperformed cash by 75% for five-year periods and 91% for ten years. There are ways to invest wisely and get good returns even in uncertain times when the situation makes the new investor nervous.
By regularly and gradually investing in the stock market whether in shares or units in a fund at the same time each month regardless of market fluctuation. David Semmens advised the investors to invest by setting up a direct debit account so that each month the amount gets debited from the bank account for investment. It is known to the masses as “pound cost averaging” or “drip-feeding.”
The beauty of this arrangement is that sometimes stocks are bought at a high price and sometimes low, giving protection against a sudden drop in the market after the initial investment.
Another way to invest money is to diversify the portfolio so that the investor is not hedging bets on a single stock to eliminate market volatility. It has been observed that stocks behave differently to different geographical conditions globally. Thus narrowing down on certain adventitious stocks to the investor is good advice. Spreading the risk and diversifying the portfolio is a great idea. It takes away the risk involved by investing in a single stock, said the Chief Behavioral Officer at Murphy Wealth, Neil Bage.
By spreading the risk with diversification of the portfolio, some stocks will perform well against other stocks in the portfolio; thus, the overall effect on the gains will be negligible. Some funds are pre-designed, having the risk spread out. Funds like the Vanguard Life Strategy range provide the investor with an instant portfolio allowing them to choose the percentage of the investment in shares and in less volatile bonds.
There are other funds like the BMO Sustainable Universal range, which allows the investor to invest from the Adventurous version through the Balanced version depending upon the investor’s risk appetite. The investor can also choose stocks or funds on his own. But there are some risks involved, and he would then need to do a detailed study of the market before investing in it.
There is also an option of going for a financial advisor who could maintain and advise the investor regularly for a fee or opt for a ‘robo adviser,’ such as Nutmeg or Wealthify, to create a portfolio equal to the investor’s risk appetite.
The investor should not sell his investment when the market is falling, especially regarding the Omicron variant—trusting that the market will flourish again after a downfall observed during the first lockdown.
Investment analyst at 7IM Salim Jaffar said that most experts are optimistic that the bad news broken by the Omicron won’t last long even though its concerns are not to be taken lightly, but it won’t cause long-term problems in the market. And the panic faced now would be less compared to 2020.
Companies are very optimistic as they have their confidence renewed. With the interest rates remaining low and the inflation high, one can only make money by investing in the stock market. Even though volatility is frighteningly high, the returns are guaranteed to be good as seen in the past couple of weeks.