Investing is a really positive and rewarding experience when markets are performing well.

But when the markets waver, you might wonder whether you should switch your investments out to a safe space for a while, such as cash.  

It’s a primordial human instinct to protect and consolidate when faced with uncertainty; and when it’s your nest egg that’s at stake, it is tempting to retreat rather than face the prospect of a loss.  

The short answer is: don’t do it.  The temptation is strong but generally speaking, you are better off in the long run if you leave your investments alone.  There are a few reasons:

Investments are for the long run. When you commit to an investment, you’re putting that money to work for at least 5 to 10 years.  If you pull it out early, it hasn’t had a chance to do all the work that you intended it to do.  

Your investment strategy is probably already diverse.  This means that each investment is split into many different funds, covering a variety of different industries all over the world.  So you have only a minimum amount of exposure to a vulnerable fund suddenly taking the plunge.  This is diversification – making sure that you have a variety of fund types in your portfolio, to minimise your exposure in any one particular area.  Each fund is a severable part – the rest can operate without it and they will actually keep working, to buoy up the downward one/s. So if one fund goes down, the rest act as a buffer to keep the overall portfolio going in the right direction.

You can tweak things rather than having to withdraw altogether.  If you don’t like the fund selection anymore, or your situation has changed and it’s time to update the fund selection, talk to your financial adviser about changing the strategy rather than fully pulling out of the market.  This is ‘rebalancing’ – moving from one fund to another as your requirements or the markets change. 

Withdrawing investments is time-sensitive.  It can take several weeks for your instruction to take effect, by which time the market may be lower again, meaning you will actually end up with a bigger loss than anticipated; or the market has increased again, meaning you didn’t need to disinvest and now you’ve missed out on the growth the monies could have had if they’d remained.  In other words, from the time you place your instruction, you have no control over the final amount, and it may be quite different from what you expected.

The short answer is don’t do it; stay strong and let your investments continue to do their work.  Assuming that your overall strategy is still right for your long term aims, there’s more to gain than lose by remaining invested and weathering the market changes.

(Disclaimer:  Assumptions have been made regarding the type of portfolio held, including a suitable level of fund diversity and that market changes are short term and within the normal range of fluctuation suited to your attitude to risk and tolerance for loss – usually around 10% for an investor who has a balanced attitude to risk. Your adviser should contact you if there is a likelihood that values will drop below this, to discuss options with you.  Alternatively, if you are concerned or would like to rebalance the portfolio at any time, please don’t hesitate to contact us)