By Rachel Efetha, Chartered Financial Planner.
This might be the sale of the century? As Warren Buffet once said, “Be fearful when others are greedy, and be greedy when others are fearful”. Now is the time to be greedy and invest.
Yes, the FTSE 100 has fallen off the edge of a cliff, but unlike our last crash in 2008, it’s not because there is something structurally wrong with our financial system. Apple has fallen by 19.9% over recent weeks, but is this rational? They are still producing and selling phones and profits have not fallen. The share price has fallen because people are worried about the unknown, and the one thing that markets hate is uncertainty.
There are bound to be some casualties from this in the travel and leisure industry. I’m sure that Cineworld and Beefeater will be impacted by closing all their outlets – but then at least they are not wasting money on utility bills by opening empty venues because no one is going there. This is the time to trust in your highly experienced fund managers who are analysing each of their holdings and looking for new opportunities. This WILL pass.
It is also the time to be considering investing. I meet far too many clients who want to invest at the top of the market because a friend/ colleague who invested at the bottom has made lots of profit. Whilst I can’t promise that we are at the bottom, I can say that if you’ve got a medium to long term investment horizon (5 years plus) then history has shown that you will do well.
It’s worth taking independent financial advice.
If you want to maximise your profits from investing in the market right now, then pay a pension contribution. For every £80 you pay into a pension, the government will pay £20 in. If your £100 then falls by 20% to £80, then it’s the tax man’s money you’ve lost rather than your hard-earned cash. For higher rate taxpayers, you will get an extra £20 off your tax bill when you come to do your self-assessment, meaning you can afford to lose £40 before you lose any of your own money.
If you invest in the FTSE 100*, currently at 5,224, and it returns to its one year high of 7,739, that’s a 48% return meaning that your £80 or £60 net contribution is now worth £148, giving you an 85% return for a basic rate taxpayer and 146% return for a higher rate taxpayer.
Of course, it might take some years to return to that high, but those kinds of returns even over five years or longer are very attractive.
*just for illustrative purposes only. Investors should have a diverse portfolio of shares, corporate bonds and property in different geographical areas and we would never actually advise clients to invest fully in the FTSE 100.
The information contained in this article is for information purposes only and does not constitute advice. No action should be taken based on this information alone. Why not contact us today to find out more.