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Investors urged to ‘keep their heads’ as FTSE 100 posts worst month in three years

Joanna Faith
Written By:
Joanna Faith

The FTSE 100 recorded its worst monthly performance in three years in June, as the Greek debt crisis continues to rattle markets.

Yesterday the index was down 1.5%, and has now fallen by over 8% since its recent peak of 7,104 (closing price on 27 April 2015).

This means the index is closing in on a ‘technical correction’, typically defined as a 10% fall from a recent high.

Last month’s negative performance was mostly down to the ongoing crisis in Greece but a slowdown in China and falling commodity prices also contributed.

However, Laith Khalaf, senior analyst at Hargreaves Lansdown, said investors would be well-advised to “keep their heads”, particularly when all about them are losing theirs.

“While the Greek debt negotiations will continue to affect stock prices and create headlines, it’s important to keep some perspective,” he said.

“The UK stock market is still only marginally lower than the start of the year, and with such low yields on cash and bonds, it still represents an attractive home for long term money. Indeed when there is weakness in stock markets it’s usually the time to buy in, not sell out.”

Tom Stevenson, investment director, Fidelity Personal Investing, said: “Share prices have been rising for more than six years now since the low point reached after the financial crisis and there have been relatively few sizeable corrections during that time. Investors should not, therefore, be surprised that events in Greece and China have triggered some more extreme fluctuations in prices.

“Volatility also tends to increase as a bull market matures. We experienced a similar evolution in the late 1990s as the market headed towards its peak. It does not mean that a bear market is imminent, merely that the easy pickings of the early part of the market cycle have already been enjoyed.

“At times like these, investors should ensure that their portfolios are well-diversified, both between different asset classes and between different geographies. While a small amount of cash in a portfolio can be reassuring (and allow an investor to profit from any short-term dips in the market), history shows that remaining invested through the market cycle results in better long-term returns. When investors try to time the market and stop and start their investments, they run the risk of denting future returns by missing the best recovery days in the market. Missing out on just ten of the best performance days in the market can have a significant impact on an investor’s long term returns.”