Market volatility explained
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Global events
Recent global events including the continuing US and euro zone debt crises, have all contributed to unsettling times in investment markets recently. The current issues in Greece could place the future of the euro zone in fresh doubt and this could have consequences for the UK. Although the UK is not in the euro, we could be affected as two thirds of UK trade is with Europe. The UK has also lent several debt ridden countries money as part of bail out packages.
The slowdown in economies across Europe could also result in less trade. Our European neighbours could be less likely to buy goods and services from us; and items we need to buy from them could become more expensive. For businesses operating from the UK, a decrease in European custom and having to pay more for European goods and services is extra pressure.
Short term movements
With the market so volatile and the frequent swings in fund performance – anyone with investments could be affected, but it's important to remember that investments are for the long term.
As these swings could continue over the coming months, it's worth looking at the long term and considering that seasoned investors often see market falls as a more attractive time to buy because unit prices can be lower. Also think about why you invested in the first place, if your goals haven't changed then the funds you have chosen should still be a suitable home for your money. Alongside this, the fund managers are seeking to minimise the impact of these movements on their fund and will be looking to make positive changes to improve performance.
You should think carefully about the implications of withdrawing your investment if it has been affected by fluctuations in the short term and seek advice if you are in any doubt. For example, if you decide to withdraw money from an investment, where its value has fallen in the short term, you could lock in losses and miss out on the potential for recovery over the longer term. However, you should also remember that there is no guarantee your investment would recover in the long term. It's wise to consider how long you want to invest for and if you would benefit from investing in different types of investments that can help spread some of the risk - this is where professional financial advice can be invaluable.
Long term focus
One of the key reasons for investing is the potential to achieve a better return than that available from a savings account. It's important to remember that investments should always be held for at least 5 years. The longer the investment term the less impact short term fluctuations are likely to have on your overall return.
This graph shows the gross returns with income reinvested (TR) from the UK's top companies (as measured by the FTSE 100 Index) compared to the rate of inflation (CPI) over a 20 year period.
PLEASE NOTE THAT PAST PERFORMANCE IS NO GUARANTEE FOR FUTURE RETURNS THE FUNDS HIGHLIGHTED ARE NOT REPRESENTATIVE OF THE RANGE OFFERED THROUGH NATIONWIDE
Even though 2008 was one of the worst years for the stock market this century, if you look at investing over a much longer time horizon the picture is much better. This highlights that the longer you invest, the more likely you could be to see your investment grow.
It's also important to review your investments regularly to ensure they are still on track to meet your objectives and how they are performing in the market conditions. There are options available to you if you feel a change is required, for example switching to different types of funds. Talking with your Nationwide Senior Financial Consultant will help you with your decision.
To make it as easy and convenient for you as possible, you can manage your Nationwide investments online. If you haven't already registered for this service visit www.nationwide.co.uk/ips and click ‘register now'. You'll receive the confirmation a few days after online registration and then you'll be able to log in and manage your funds.
Many investors also aim to beat inflation by investing in assets rather than depositing money in savings accounts. With interest rates still very low, and well below the rate of inflation, leaving money in traditional savings accounts may actually reduce its purchasing power over a period of time. The piece below shows the effects of inflation on food, using an example weekly shop of £100 in 1990 this would have cost over £165 in 2011.
£10,000 in January 1990 = £19,164 today
- Your £10,000 would need to have grown by an average of 3.1% per annum, to £19,164, just to have kept pace with inflation.
- If you achieved a lower rate of growth, the real value of your money would have fallen.
£10,000 in January 2000 = £13,745 today
- Your £10,000 would need to have grown by an average of 2.9% per annum, to £13,745, just to have kept pace with inflation.
- If you achieved a lower rate of growth, the real value of your money would have fallen.
£10,000 in January 2005 = £12,123 today
- Your £10,000 would need to have grown by an average of 3.3% per annum, to £12,123, just to have kept pace with inflation.
- If you achieved a lower rate of growth, the real value of your money would have fallen.
£10,000 in January 2009 = £10,899 today
- Your £10,000 would need to have grown by an average of 4.4% per annum, to £10,899, just to have kept pace with inflation.
- If you achieved a lower rate of growth, the real value of your money would have fallen.
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Nationwide is on your side
Following the recent instability in the financial markets, we would like to assure you that Nationwide is secure and we are committed to helping you meet your financial goals. We're the world's biggest building society with assets in excess of £190 billion (as at 30 September 2010) and are the UK's third largest savings and mortgage provider. We remain one of the strongest and best capitalised financial organisations in the UK.
To ensure we give you the best possible service we carefully selected Legal & General, one of the UK's leading financial services companies, as our investments provider, because like us, Legal & General aims to put customers interests at the heart of its business.
Through Legal & General we offer a range of investment funds that could help towards your investment goals, and with over 2,000 available on the market as a whole we select our shortlist by carrying out customer research which helps us to meet our customers' needs. The funds we have selected through Legal & General are rigorously monitored and are reviewed monthly; and from time to time, we may add or remove a fund.
What you can do
The easiest way to keep an eye on your Nationwide investments is to register online with IPS and track your valuations from your own computer.
Once you have registered you can also:
- buy new funds
- add to your existing investments
- switch between the available funds
- view your transaction history, showing the purchases you have previously made
All from the comfort of your own home.
If you feel you need advice on your investments and any changes you might have to make then please contact your Nationwide Senior Financial Consultant or call us on 0800 028 6029 to book an appointment.