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Why you should ignore the latest fuss about a stock market crash

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Watch out, the doom-mongers are on the march again. Newspapers and website are suddenly groaning with articles warning that global stock markets are heading for a crash and we should all run for cover.

Black on black

It happens every September and October when teenage City scribblers’ calendar prompts remind them that Black Mondays, Wednesdays and Fridays have a distinct autumnal bias. US-based analyst Bill Bonner is far from alone in warning of a great stock market crash, one that could wipe $30trn of global stocks in a matter of days. 

Right now, the trigger seems to be rising bond yields. Ten-year US Treasuries recently hit a dizzying 1.76%, the highest figure since, wait for it… 27 May 2016. Help! It’s a similarly catastrophic tale in the UK, where 10-year bond yields have just hit a vertiginous 1.27%. Aargh! Don’t look down, because that’s the highest level since Brexit, according to one breathless report. That’s right, 23 June, just over five months ago. 

Walls of worry

You might want to panic about a bond market crash but given these pathetic movements, I have better things to do. I could, for example, shred my nerves worrying about a meltdown in the Chinese credit and property markets, or its shadow banking system. In fact, I seem to have spent the last five years fretting over just that, to little avail, because I can’t do a single thing to stop it from happening. And guess what? It still hasn’t happened. And nobody can say with any certainty when it will.

This kind of nonsense has enjoyed a fresh lease of life in the wake of the financial crisis. Harrowed investors feared a repeat and to be fair would have got one, if central bankers hadn’t soothed markets with cheap credit and easy money. In these circumstances sticking your portfolio under the mattress is tempting but has only got one guaranteed result: you will lose money.

Bear necessities

The first problem with selling everything is that you’ll get a near zero return on cash. The second is that stock markets are ornery things and will instantly embark on a record-breaking bull run to mock your presumption. The third is that you won’t generate any dividends while you’re out of the market. The fourth is that you’ll rack up countless trading charges. The fifth is that you then have to decide when to buy back into the market, and will almost certainly get the timing of that wrong as well. The sixth is… need I go on?

I’m not saying that stock markets are NOT going to crash, because I don’t know. Nobody knows. But history shows that when they do crash, they recover pretty quickly. The biggest losers are those who sell at the bottom, crystallise their losses, then buy back into the market far too late.

So ignore the doom-mongers. Anybody who listened to them in recent years has lost an awful lot of money. If you’re investing for at least five or 10 years, as you should be, all you can do is keep calm, and take advantage of any market correction to pick up your favourite stocks at bargain prices. It will save you an awful lot of fuss, and make you a lot wealthier in the longer run.

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