Staying calm while riding a rollercoaster

Published on Friday 18 July 2008 21:26

THIS was always going to be a difficult year for investors, but few could have imagined the roller coaster experience that we've had in the first six months.

The initial portfolio, with a significant weighting in cash, has proved to be the right choice, providing protection over the period to April. During this time many financial institutions reported worsening exposure to the global credit crisis and their share prices fell. As financials comprise significant weightings to stockmarket indices, they too fell badly. Emerging markets and commodities led the recovery in April and May and on the back of this I reduced the cash component, buying greater positions in existing funds, with very little exposure to the US and UK.

A record oil price and further concerns regarding financials, especially in the US, have plunged many markets down 20 per cent from their recent peaks, representing a technical recession.

Long-term investors should remain calm at this time, as well-selected portfolios can still provide growth in volatile markets. I still believe that concentrating on quality funds, away from UK and US in the short to medium term will provide good returns.

There will be continued volatility on world markets and until this calms down, I have no intention to move the remaining cash position.

During inflationary periods, as now, equities provide very sound prospects for growth. Investors should remain calm and focus on the medium to longer term.