I’ve just started investing: here’s why the market sell-off has not put me off

Beginners may feel unnerved by the stock market dives triggered by the coronavirus outbreak. Nina Kelly shares six dos and don’ts for those starting out.

If you are a fledgling investor, or were just about to dip your toe in the water, this is undeniably a scary time. As well as the terrible human cost of the coronavirus pandemic, you’ll be reading about various economists’ predictions for the worst global slump since the Great Depression and digesting a swathe of news about turbulent stock markets, furloughed staff, and rising unemployment.

However, if you are one of the fortunate ones, and have held on to your job, here are a few things to consider before making any sudden investment moves.

Keep on keeping on…do keep investing

There have been three major market crashes in my lifetime. The first was Black Monday in October 1987. I was only six and as a child of the 1980s the likes of She-ra Princess of Power was on my radar rather than the stock market. However, I do recall how the Great Storm, which prophetically took place a few days before, uprooted huge trees in our neighbourhood.

The second market calamity was the dotcom bubble in the early 2000s. Again, I’m similarly hazy on this crash too, as I’d just gone to university and investing was the last thing on my mind as I adjusted to student life. But I do remember the third significant slump: the financial crisis of 2008-09. I was in my late 20s and working for a national newspaper. Economic terms that once belonged in the business section; “Freddie Mac and Fannie Mae”, “credit crunch”, and “quantitative easing”, were appearing regularly on the news pages, and the “dismal science” was making the front page. Although I had a workplace pension, I didn’t consider it an investment (unlike now), and I had yet to take control by selecting my own investments. 

Now, during the coronavirus downturn, everything is different: I am invested in a multi-asset fund, Vanguard Life Strategy 80% Equities, which I hold in a stocks and shares Isa. What should I – and others like me – do?

Put simply, nothing. If you are a buy and hold investor, and I am, the idea during these alarming times is to do exactly that: you hold the investment through good times and bad, and keep making any regular payments, repeating to yourself if necessary the investment mantra “it is time in the market, rather than timing the market” that matters. If you miss the “bounce” – when the market experiences a recovery – you can miss out on a huge uplift in the value of your investments. In addition, you will currently be benefiting from buying fund units at a likely lower cost amid the downturn.

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Don’t take the money and run

If you pull your money out of an investment, there is no chance for it to recover. For now, your investment losses are only on paper. Although the coronavirus crisis is all-consuming, at some point it will end. If you are young, your investments have years to recover, so don’t fret over any negative numbers. Also, investing is for the long term. I mentally committed to regular investing for five years when I first bought the Vanguard fund one year ago. Hopefully, I can continue doing that.

And stretch…do expand your knowledge

If you are not home-schooling or caring for vulnerable people, you are likely to have a few extra hours at your disposal. As well as racking up screen time and conquering your to-read pile, why not take some time to learn more about investing? If you don’t know enough about your pension, or you are interested in ethical investing, it’s likely that you now have time to make inroads. Investments may seem far less interesting than video-chatting with friends, or experimenting with a flourless, egg-free, no-butter cake, but steps taken now could hugely benefit you later because of compound interest.

Don’t stop contributing to a pension

If you are lucky enough to be in work, don’t stop contributing to a pension simply because markets are volatile. What is happening to your pension contributions at the moment is that the price of units in a pension fund are cheaper, so that your money can buy more units of your pension fund at a lower price. When markets rise, the price will go up, and your contribution will buy fewer units. If you stop your own pension contributions, you will also lose your employers’ contributions, which is “free money” that you are turning down.

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Only fools rush in…don’t rush to snap up in-vogue shares

Investors often hear the words “invest in what you know”. In a recent interactive investor podcast interview, former Daily Telegraph writer and current Sunday Times’ columnistIan Cowie, who is interactive investor’s* new columnist, spoke about how he started investing in tonic water brand FeverTree a few years ago, after his wife began drinking gin with her friends. He later sold some of those shares and did very well.

It’s tempting for beginners to look around them to see what’s popular and then invest accordingly. The coronavirus pandemic means that we are all using video chat a lot more. But this does not necessarily make the shares a “buy”, instead it is more sensible to be sceptical about investing in short-term “trends”. Moreover, unicorns and small businesses are considered high risk and beginners are likely to be better off getting exposure through a fund or investment trust. 

Incidentally, it’s been reported that some investors who thought they were buying shares in Zoom Video Communications were actually buying shares in Zoom Technologies (a small Chinese company) by mistake, whose share price rose until the US Securities and Exchange Commission (SEC) temporarily halted trading in them.

Avert your eyes…don’t look

I honestly haven’t checked the performance of my fund since the recent market sell-off, as I understand that it will have taken a hit. Luckily, I’m young enough to have time for it to recover. Not looking at the performance figures is not necessarily a bad idea for set and forget investors. I will review my fund’s figures when things look a little brighter, until then, stay safe and stay home.

*interactive investor is Money Observer’s parent company.