Going it alone in the stock market without professional advice can be a real challenge.
Here are four lessons we believe it’s important to remember when it comes to investing:
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Four key lessons about investment markets
4. Sometimes stock markets are totally detached from reality
Recession, inflation and public sector strikes.
With all this bad news, it’s perhaps surprising to see UK markets on the up. The FTSE 100, consisting of the top UK-listed companies, is at its highest since 2018.
That’s a tricky thing to get your head around. But markets are forward looking. They don’t necessarily reflect what’s happening right now, but what investors think is going to happen in the future.
Understanding this means having to think several moves ahead but the best long-term strategy is to pursue a long-term financial plan that will naturally factor in the stock market’s approach.
3. For every right prediction, there’s a wrong one
At this time of year, a lot of the bigger investment houses like to come out with their forecasts for the year ahead.
We just need to look at the pundits who failed to predict a Trump win in 2016 to know it’s easy to guess wrong.
There’s a lot of noise out there. We say it’s best to ignore it and instead have a long-term plan that adapts to what’s ahead, rather than following bold predictions that fail to come off.
2. Diversify, diversify, diversify
Earlier this year, Nate Geraci, president of US-financial planner ETF Store tweeted that just five well-known stocks – Apple, Amazon, Tesla, Microsoft and Facebook’s owner Meta – were responsible for half of the S&P 500’s losses over the previous year 12 months.
At the same time, around three quarters of stocks in that index were up 20 per cent from their 52-week lows. For us, this supports our belief in a key investment strategy – diversification.
It’s very easy for investors to follow the herd. That can potentially be an error.
1. Things are not always as bad as they seem
Fear is a big driver in investing. It might be a company’s poor results, or negative headlines, but when investors get nervous, it can sometimes lead them to extreme measures.
But as we said in a recent blog, the headlines aren’t always as bad as they appear at first glance. While it’s sometimes tempting to change strategy, that’s not necessarily the best course of action for the long term.
The golden rule
With these lessons in mind, we can all benefit from taking advice rather than going it alone. Our team can help you remain objective as well as support you in visualising your financial future.
Alastair Moore is a Chartered Financial Planner at AAB Wealth.