Well, what a year it’s been…
High street banks in crisis, investment banks closing their doors, ‘experts’ pointing fingers, and SERIOUS questions asked of the Financial regulators. Yes, what WERE the regulators doing on both sides of the Atlantic? The Financial Crisis is real and has touched almost everyone.
And to cap it all, a $50bn (expected) fraud uncovered in the US.
Is there more to come, one wonders?
No one knows the answer to this, but it may be of use to look back in history so we can observe the lessons then.
With reference to the stock market, perhaps the most relevant comparison can be made with the market of ’73-75 and the Financial Crisis that hit during that period.
Many high street banks suffered then as well. In fact, there were rumours that Natwest and Midland were on the verge of collapse. This Financial Crisis has hit banks of all sizes.
Let’s look at some other factors:
Here are facts based on the Financial Crisis from the 1970s. The index of the time, the FT30, fell by over 70%, this time around the FTSE 100 has fallen 43% (year ending October ’08) interest rates are now 2%, whereas in ’73-74 they were 15% consumer price inflation now stands at 4.5%, but it was 20% then! the risk in ’73 was stagflation, it’s now deflation the peak of the FTSE 100 was 6,730, so would have to fall to 2,019 to compare with the fall in the ’70s We know from history that when markets recover, they can recover fast. In fact many investors will be hoping that the recovery from the Financial Crisisof the ’70s will repeat itself.
On January 6, 1975 the FT30 closed at 146 (the lowest point). Within 8 days it had risen to 176 (20% increase), and after 18 days to stood at 252 (72% increase). By the end of 1975, it had increased by more than 150%!
Of course, there’s no knowing what will happen during this Financial Crisis.
So what action can you take with any funds you have invested in shares, whether directly or via investment funds?
Here’s some quick pointers to help you weather this Financial Crisis:
1. If your money is invested directly in individual shares, you may want to consider spreading the risk and re-investing into a mutual fund(s). Check the tax position before you take any action.
2. If you are investing into mutual funds, check how much risk you are taking as the risk profile of the fund may have altered since you invested.
3. Look at your overall asset allocation. This is the split between growth assets (shares) and income assets (bonds). Do you have too much exposure to equities?
4. How much risk do you need to take to accomplish your goals? (have you even thought about this?)
5. Scrutinise the charges you are paying on your funds. Can these be reduced? You could consider tracker funds and passive funds as these are normally cheaper.
The Financial Tips Bottom Line
As we’ve seen during previous recessions and periods of Financial Crisis and the economy WILL recover. Hopefully we’ll see a more realistic financial marketplace where obtaining credit will be harder, especially for those who shouldn’t have qualified in the past.
As listed above, now is the time to be proactive and take positive action with your investments. Don’t make the mistake of thinking that many funds are the same, as it could cost you thousands of pounds over the long term.