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How to protect your finances against coronavirus and the rate cut

by Horacio Winters (2020-03-25)

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Global markets were plunged into chaos this week after their worst day since the financial crisis of 2008.

More than £150billion was wiped off the value of leading companies on what was dubbed the new 'Black Monday', raising concerns that we are heading towards a global recession. 

But while panicked traders speak of 'utter carnage', experts are calling on investors to grin and bear it. Investments are long-term projects, and portfolios should be designed to ride out short-term shocks. 

The bad news for savers, was that the stock market storm was followed by a big Bank of England base rate cut today, from 0.75 per cent back down to the lowest level on record of 0.25 per cent. 

So, what can you do to protect your finances? If you beloved this article and you wish to receive more information with regards to the simple way to accept payments kindly visit our own web-site. From investments to savings, and your mortgage, travel plans and pension, read our guide to weathering the storm.

Virus panic: More than £150bn was wiped off the value of leading companies on what was dubbed the new 'Black Monday', raising concerns that we are heading towards a recession

Why investors should think long-term
Investors have been heavily rattled by the stock market falls seen over the past fortnight, which are the biggest seen since the financial crisis. In fact, Monday's 7. 7 per cent FTSE 100 drop was the fifth biggest daily fall on record, after the Black Monday and Tuesday falls on 1987 and the financial crisis declines. 

But investing is a long-term game and calculations for Money Mail and This is Money show that even if you had invested £10,000 in the FTSE 100 in June 2007, when markets were at their peak prior to the 2008 crash, your shares would still have a total return of £14,488 today.

They key to that return is the compounding of dividends - and how this is responsible for much of the returns from the stock market over time. 

Figures from investment platform AJ Bell show that £10,000 invested in the FTSE 100 in 1985 would now be worth £156,547 if dividends were reinvested. 

This is despite the crash of 1987 and the 2008 financial crisis — whereas the same £10,000 left in savings accounts that paid the Bank of England base rate would now be worth just £54,733. 

> Five tips to invest in a crisis: Read our guide to what to do 





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Is it time to sell, sell, sell?
Don't 'lock in' your losses. After the initial slump on Monday morning, the market clawed back some of its losses over the next 90 minutes.

'If you'd simply not sold until you'd walked the dog, you would have lost less money,' says Steve Webb, a partner at pensions consultant Lane Clark & Peacock.

Investors should be thinking in terms of five years or more. 

Tom Stevenson, investment director at Fidelity International, says: 'When markets hit rocky waters, jumping in and out should be avoided, or you run the risk of missing out on unexpected opportunities that might arise from market corrections.'

Now is a good time to assess your portfolio and take advantage of opportunities created following the virus outbreak.

Check that your portfolios are diversified. Include different assets such as property, cash and fixed interest across different sectors and regions as well as shares.

Laura Suter, personal finance analyst at investment firm AJ Bell, says it is also important to hold cash — although not too much. 

She says: 'Cash leaves investors with scope to pick up bargains if they think stocks are being oversold. That said, money held in cash for the long-term risks being eaten away by inflation.

'Gold may also be an option to help diversify your portfolio, although the price has already rallied a lot. 

If you wanted to buy, options include a fund of precious metal miners, such as BlackRock Gold & General or the VanEck Vectors Gold Miners ETF, which tracks the price of gold.'

But don't overdo it. No one knows what is going to happen and you will rack up fees if you make panicked, short-term changes to your portfolio.

Mr Stevenson recommends a drip-feed approach, where you invest small amounts regularly.

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