Investment blues? You'll laugh about it one day

There's no respite for investors as falling stock markets hit the value of their unit and investment trusts, pension funds and with-profits policies. But, for the time being at least, industry experts are urging us not to take drastic action.

There's no respite for investors as falling stock markets hit the value of their unit and investment trusts, pension funds and with-profits policies. But, for the time being at least, industry experts are urging us not to take drastic action.

"There is absolutely no point in panicking at this stage," says Phil Wagstaff, managing director of UK retail investment at M&G. "It's time for investors to keep a level head and ask why they invested in the first place. It was either for income, [in which case] many are still doing well, or long-term growth. As an industry we've always stressed the importance of investing for the long term, but people got carried away a few years ago and there was a feeling that equities provided a one-way ticket."

Many have since learnt a hard lesson, with the FTSE now around 50 per cent down from its peak in December 1999. However, research from independent financial adviser (IFA) Chase de Vere reveals that 42 per cent of unit trusts have produced positive returns over the past five years, despite market falls in the past three. And if you go back over the past 10 years, 92 per cent of funds have produced positive returns. So although we're in very difficult times at the moment, there is still a strong argument for equity investing.

While you shouldn't base an investment decision on past performance alone, experts believe shares will continue to provide the best long-term growth in the future.

In the short term, though, investors should brace themselves for further reverses. "There is going to be more volatility until sentiment improves," says Nikki Foster, savings and investment manager at Chase de Vere. "And I don't think sentiment will improve until the current uncertainty about war with Iraq has been removed."

As Philippa Gee, investment strategist at IFA Torquil Clark, points out: "Stock markets can deal with facts, good or bad, but what they can't deal with is nervousness and that's what we're seeing at the moment."

Even so, if you can bear to sit tight, that's probably the best option. If you sell now, you'll crystallise all the losses of the past three years. At the moment, any losses you have incurred are only on paper, and Michael Owen, joint managing director at IFA Plan Invest, says that people selling out could be doing so at or near the bottom of the market. "The yield of a typical UK share is 4 per cent while that of gilts [UK government bonds] is 4.2 per cent," he says. "The two are about to cross over and that hasn't happened for more than 40 years, which would suggest that either gilts are too expensive or shares are cheap."

Certainly, many fund managers are optimistic that investment opportunities are out there. "There's no doubt people have been scared by recent stock market falls," says Edward Bonham-Carter, joint chief executive at Jupiter Asset Management. "But precisely because of these falls, many UK shares now represent far more of a reason to buy than to sell."

Graham Spooner, adviser at stockbroker The Share Centre, says: "For the really aggressive investor there are some good opportunities out there." He adds that if you aren't happy to take such a risk at the moment, it's worth drip feeding money into the market on a monthly basis. That way, you won't be fully exposed should markets fall further, but you'll also be positioned to take advantage of any gains. And in hard times, a market presence is important.

"Investors may be tempted to try and avoid the current period of stock market volatility by selling out and buying back at a later and more settled stage," says Paul Kafka, executive director at Fidelity Investments. "[But] Fidelity's experience demonstrates that investors would be unwise to try and time the market. Historically, some of the strongest rises have come immediately after sharp declines – when many who have tried to anticipate share movements may still be out of the market."

Now is the ideal moment to look at your portfolio and make any necessary adjustments. "It's not a time to panic but to look at why you're holding some of your investments," says Mr Owen. "It's not a time to be clever; it's a time to stick to core funds and make sure your portfolio is balanced and diversified."

By all accounts, most investors seem to be remaining level-headed and, while reluctant to invest new money in the market, are prepared to sit tight and wait for things to pick up. If you're nearing retirement, however, you may not be able to wait for an upturn, in which case you should seek advice from an IFA about the best way to tackle the problem.