Investment Fears in Berkshire
We have received many calls from followers of our blog regarding the state of the investment markets, the reason being that the media is making comment on the possible collapse of investment markets.
The 30th anniversary of the 1987 crash is just ahead, however looking back to that period, the market at that time was running way above the long-term average. Now, however, the investment markets generally are not at huge valuations (except of course, the US market).
Before we all breathe a sigh of relief, one needs to take note that there are several factors that could create the right conditions for a correction. There have been widespread purchases of investments “on margin” mainly by the banks AND widespread indiscriminate and substantial purchases of ETF investments.
Although the investment markets have risen at a gradual pace, any correction if it does occur could give rise to a massive drop in the investment markets, as the banks’ would need to bail out quickly to cover their margin calls, and ETF investors take fright.
Many investors panic when investment markets collapse, as they mistakenly believe that the temporary declines in the price of their investments lead to a permanent loss of value.
Providing your portfolio is well diversified, then you should be OK, unfortunately many portfolios are not.
Major market declines are often followed by market advances which erase the previous decline and over time lead the market to new highs.
So the real price you pay for investing in equities is the worry and uncertainty when the market is in a period of decline. Your reward, provided you hang on in there, is increased levels of dividends and capital growth.
It is important to ensure your portfolio is highly diversified – if you are losing sleep give my PA Marie a ring us on 01189 347 920 and we will see if we can assist you.