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Market fluctuations are normal and expected...
Prepare for the downs, the ups will take care of themselves.

The Chinese Crisis

So much for the markets being on a slow simmer for the summer, the Chinese crisis that I mentioned a few weeks ago is causing a full blown equity market correction to put the Euro/Greek crisis in the shade.

The emotions of traders with short-term investment strategies are running wild, fanned by information overload from the news providers who can turn any mole hill into a mountain.

There is no doubt that China has some growing pains that can cause some real problems for the global economy. China’s economic growth is slowing from over 14% per year in 2007 to something closer to 5% or 6%. Compare this with our own GDP growth for 2014 of 2.6% you might think what is all the fuss about? However, their economy has been led by construction which caused the demand for commodities such as oil, copper and steel to rise in the early part of this century. Now they need to rebalance their economy towards the consumer and service sectors. As always there will be winners and losers. The losers will the companies and countries providing commodities and the winners in time will be those with consumer goods industries.

So should we panic?

Stock market information is freely available; it is very transparent in our modern information led world. This causes people to think of equities as short-term when in reality they are a medium to long-term investment.

Corrections, a fall of 10% from the market high, have occurred 27 times since 1945 or once every 2.5 years.  There have also been 12 bear markets [falls of 20%]. Equity investments have returned more than cash, fixed interest and property during the same period that these downturns occurred. Periods of equity market increases are never documented as vigorously by the press.

 

When you plan to travel, you fill the car with fuel, check the tyres and prepare yourself for any possible delays to make sure you get there on time. The same is true of investing. Select the right investment profile, a 50:50 fixed interest/equity split means if the equity markets drop by 10% you only suffer a 5% drop. Diversify, make sure you have a variety, in 2008 the banks collapsed, Oil companies fell, continued to pay dividends and recovered. Dividends are like rent from a property, providing they are being paid a short-term drop in value does not matter. Buy quality investments [good track record, good products and loyal consumers] with the long-term in mind, hold and review regularly.

This chart is taken from our investment proposition and shows how IMI fared through the 2008 Credit Crunch. The share price fell, dividend continued to increase and the shares recovered. To get in and out of the market you need to know two things; when you are at the top and when you have reached the bottom, both are easier to identify with hindsight and require a hearty dose of conviction at both ends. Therefore, if you have the right investments a case of steady as she goes may be more suitable.

Exeter Financial Advisor

Source: Alpha Terminal & Raymond James Investment Services.

IMI Dividend v Price Performance 2000-2013. This stock has been selected for illustrative purposes only. Please be aware that each investment's dividend and price performance is subject to the performance/profits of that particular company. Past performance is not a reliable indicator of future results”

Please call or email for a free initial consultation if you are concerned about the current market effect on your investments.

 
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