What market falls mean for your stocks and shares ISA

Worries surrounding the coronavirus sent global stock markets into freefall at the end of last month, only for them to rally last week amid hopes that governments would take measures to reduce the economic impact of the outbreak

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Anyone with a stock and shares ISA, or who’s considering putting money into one before the end of the tax year, is likely to feel understandably nervous given recent market volatility.

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Worries surrounding the coronavirus sent global stock markets into freefall at the end of last month, only for them to rally last week amid hopes that governments would take measures to reduce the economic impact of the outbreak. However, since then they have continued to swing wildly, leaving many investors wondering which way to turn.

Here are some of the things you’ll need to consider if you have a stocks and shares ISA, or are thinking about investing in one before the end of the tax year on April 5.

Take a long-term approach

Rather than letting dramatic daily falls spook you, investors should try to focus on the long-term and the reasons they invested in the first place. Although it might be tempting to run for the hills during turbulent times, cashing in your investments when they’ve fallen in value means you’ll be turning paper losses into real ones.

Tom Stevenson, investment director at fund managers Fidelity International said: “It may sound counterintuitive but staying invested throughout times of volatility is the best strategy. When markets hit rocky waters jumping in and out should be avoided, otherwise you run the risk of missing out on unexpected opportunities that might arise from market corrections.

“Regardless of how experienced one is as an investor, it is incredibly difficult to predict how the market is going to behave. Therefore, timing the market is a bad idea and you are more likely to get it wrong than you are right. Taking a long-term approach and remaining invested in spite of highs or lows is more likely to get you the outcome you want.”

Diversify your investments

 If you’re thinking about investing in a stocks and shares ISA to make the most of this year’s £20,000 ISA allowance before the end of the tax year, investing in different types of assets and across a range of geographical areas might help reduce the risk of losses during periods of volatility.

The hope is that if your investments are well-diversified, even if some of them fall in value, others may rise to help offset these falls. If you’re not sure where to invest, you should seek professional independent financial advice.

Think about investing regularly

If you’re worried about paying a lump sum into a stocks and shares ISA, you might want to consider making smaller regular investments instead. Putting your money slowly into the stock market means you invest across a range of prices, so when share prices fall, your money will buy you more shares and less when they rise in value. This can help smooth out volatility as you effectively pay the average price for your investments. It can also help prevent you from making knee-jerk reactions as you’ll invest regardless of whether the price is low or high.

Jason Hollands, managing director at investment service Bestinvest, said: “If you are unsure where to invest or whether it is a good time to invest, this should not stop you utilising your ISA allowance. You can always fund the allowance initially with cash and then decide when and where to invest later. Investing on a regular basis, such as monthly, is a great way to overcome any jitters you may have about timing.”

 

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