Dare you invest in today’s stock market?

Harvey Jones 

After the bull runs of the 1980s and 1990s, the new Millennium has been a serious disappointment for investors. Is it time to give up on stocks and shares?

Paint it black Monday

At the end of the twentieth-century the FTSE 100 was at an all-time high of 6930. Nearly 16 years later, it's a staggering 12% lower. 

This is a worry for millions of ordinary people who depend on the stock market for their pension funds or tax-free individual savings accounts (ISAs).

Many will have been dismayed by the events of Black Monday, when fears over the Chinese economy sent share prices crashing around the world. So what should you do about it?

Stay calm

The first thing to say is this: don't dump all your shares or investment funds in dismay. So far, you have only incurred paper losses. But if you sell, you will instantly convert those paper losses into the real thing.

Take your time over any decision.

Look to the long term

If you invest in the stock market, even through a pension or ISA, you have to accept that the value of your capital will rise and fall. If the thought of that gives you sleepless nights, then you should stay away.

Older investors should also tread warily, as they have less time to make good any losses. But if you are investing for at least five or 10 years, stocks and shares should still prove rewarding in the end.

Reinvest your dividends

What most private investors don't realise is that almost half your total returns come from dividends, the regular payouts companies make to reward investors for holding their stock. Many household name companies now offer dividends yields worth between 4% and 7% a year. Re-investing these dividends back into the stock can really help turbo-charge your returns.

Embrace volatility

Stock market highs and lows can actually work in your favour. If you are brave enough to buy shares after markets have fallen, you can benefit from any subsequent rebound.

Sadly, too many people only summon up the courage to buy at the top of the market, when shares are often overpriced. Timing the market is almost impossible so a better option may be to set up a regular monthly contribution to automatically buy shares through thick and thin.

Spread your money around

The risks of investing in stocks and shares are high, but so are the potential rewards. You need to balance that risk by diversifying, holding a mix of cash, bonds and property as well. That way if one investment underperforms, others may compensate by doing better.

The stock market is down, but it isn't out. And if you are investing for the long term, there is no reason for you to be either.