The FTSE 100 is bouncing around the 5,000 point level as government promises haven’t done much to settle nerves. But it’s hard to know, at this stage, what will help and what won’t — and the priority has to be health, not wealth.
Many of us invested in shares are on short-term losses, on paper at least. But what should we do? We should, at least, avoid some key investing mistakes.
According to investment professionals, it’s a good time to be in cash now. On one level, yes, that’s perhaps true. Or, at least, it would be a good time to be in cash had you moved to cash before the FTSE 100 crash. It’s not much use suggesting it now, and it could even persuade people to sell their shares and crystallise some significant losses.
I’ve also seen so-called experts banging on about the importance of being diversified among various asset classes. They’re talking about bonds, cash, gold… Again, sure, being diversified away from stocks would have been beneficial had you done it before the virus arrived.
But is diversifying away from stocks a good long-term strategy? If you have a decade-long horizon or more, I say no, because you’ll miss out on the best performing type of investment ever.
So don’t make the investing mistake of listening to the experts and their wise-sounding hindsight.
I did read one sensible bit of advice, and it concerns debt. With interest rates being low, a lot of companies are carrying high levels of debt these days. And in an economic crunch, those with big debts are the most at risk. So yes, it seems sensible advice to steer clear of companies carrying debt.
But there’s nothing new here, and nothing that’s remotely specific to the current panic. I’ve been banging on about the dangers of debt for ages, and I’m especially scathing about companies borrowing big while paying top dividends. I think running a company like that is just asking for trouble. And as this little strand of RNA that’s causing so much mayhem shows, we just can’t tell when that trouble is going to knock at the door.
I’ve recently highlighted Premier Oil and Tullow Oil as examples of how debt can potentially cripple a company. So I repeat my advice to not invest in companies with high debt. Not just for the coronavirus downturn, but for always.
To quote that Kipling chap, this really is a time to “keep your head when all about you are losing theirs.”
The case for investing in shares for the long term has not changed. All those companies are the only things out there that actually generate new wealth, while other forms of investment are really just shuffling wealth around. And I really can’t see how that can possibly change.
Interestingly, over the past week or so when the Footsie has been sliding and dipping below 5,000 points, shares in investment services provider Hargreaves Lansdown have started picking up again. If people are panic-selling shares, those providing the services are making a small charge for every transaction. And that will carry on when the tide turns and everyone starts buying again.
So I say stay calm, and don’t get swept away by the tide.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.