Investment beginners: 4 tips to help you take the plunge post-Brexit
Since the majority (52%) of the UK public voted to Leave the EU, the markets have been rocked with uncertainty.
Experienced investors see this climate as a buying opportunity but if you’re new to investing, the volatility can be daunting.
Andy Parsons, head of investment research at online trading platform The Share Centre, suggests these four tips to consider when making a move during volatile times.
1) Volatility creates buying opportunities
For those with a keen eye and stomach for turbulence, volatility can create a buying opportunity. By early afternoon at The Share Centre on results day, it had seen 56% of trades as buys and 44% of trades as sells, indicating that investors with an appetite and appreciation for risk are using market volatility as a cheaper entry point into some of the favoured investments whether large or small. Novice investors might consider following their lead, with Parson’s caveat: “it’s important to remember that you should only buy what you know and understand.”
2) Drip feed into the market
The ability to drip feed money into your investment during volatile times is an ideal way to help navigate such conditions. Adopting a ‘little and often’ approach is an achievable strategy, and drip-feeding into an investment can help reduce exposure to volatility while also benefiting from the returns. See YourMoney.com’s Why drip feeding your money is better than investing lump sums guide.
3) Risk vs reward
Parsons said you need to be realistic in your expectations. “If you are saving for a specific reason or event and need to achieve a certain level of capital, you need to consider the overall timeframe and approximate level of return required to achieve that aim.”
Investors need to consider whether the investment carries a higher degree of risk than you are comfortable with taking. “If the answer to this is yes, then the investment is likely to be unsuitable and will likely make you feel uncomfortable and could cause sleepless nights and a vast amount of worry,” Parsons said. Always ensure you are comfortable with the risk being taken and if needed, realign and appraise your objectives.
4) Be flexible and be wary
During periods of market volatility it is crucial for investors to identify and appreciate their tolerance to potential losses. ‘Stop loss’ limits and ‘buy limit’ orders could therefore be worth considering.
Stop loss limits automatically trigger a sale when they reach or fall below a price you’ve set which can minimise potential losses.
He said: “Stop loss limits are a wonderful tool in normal market conditions but investors should appreciate they also have the potential to be your worst enemy. In times of extreme market volatility, they could be triggered at prices way below the level set, due to prices plummeting and subsequently falling through that level.”
Parsons said that for those actively seeking to benefit from the volatility, a buy limit order (allowing you to set the price you’re willing to pay for a particular stock, for instance) may be worth considering as “it may allow investors the potential flexibility to pick up an investment at a significantly reduced price, compared to normal market conditions.”
See YourMoney.com’s Getting started in investments for more tips and guides for beginners.