Scared to invest? 3 low-stress ways to profit from the Footsie's drop
The prices of FTSE 100 shares have fallen, so what should we do? Don't panic, for one thing. In fact, if you still plan on a few more years of investing, you should rejoice, because you've just been handed an unexpected opportunity. Here are three things you can do to take advantage of it right now.
Buy a tracker fund
If the whole of the stock market is in a slump, it can really be hard deciding what you should buy and what you should sell. After all, it might not be obvious which shares are falling for genuine reasons and which are being dragged down irrationally along with them.
But you want to do something positive, right?
What better time to invest in an index tracker fund is there? If you go for a FTSE 100 tracker, you should get a performance that very closely follows that index (minus the typically very low charges). Alternatively, if you prefer a wider range of smaller companies, you could try a FTSE 250 tracker -- the FTSE 250 has outperformed the FTSE 100 over the past five years.
Or then again, you could buy the whole market with a FTSE All-Share tracker.
Whatever you go for, you'll get more for your money when the indexes are down, as they are right now.
Check your portfolio
This is also a good time to take a breather from scouring the headlines and looking for your next investment, because it might just be sitting right in front of you among the shares you already own.
When prices are falling, it can be very valuable to re-examine your current portfolio, revisiting your original reasons for buying and checking to see if those reasons still hold up.
Have there been any profit warnings? Have forecasts been downgraded? Has the CEO been jailed for embezzlement? All of those could be reasons for selling a holding.
But if nothing bad has happened and it's still looking good, you should think of topping up on shares which have just become better value.
You might even decide that some of your successful picks have risen far enough to correct any previous undervaluation from when you bought, and they could be ripe for a bit of profit-taking to invest in better bargains now.
Do some bottom-scraping
I bought 24 tins of Branston baked beans last week, because a local supermarket had them on sale at 3 for £1. It makes sense to stock up when they're cheap, doesn't it? Why should that be any different with shares?
So now that the Footsie has fallen, and you've scrutinised your existing holdings, go have a look and see which other shares have fallen the furthest and why. If a whole sector has slumped further than average, there might be something structurally wrong with it -- but it might just be an irrational overreaction.
One obvious example was during the financial crisis when banking shares crashed. Across the big banks themselves, I think that was an understandable reaction. But the contagion spread to the insurance sector too. And despite there being some genuinely troubled firms in it, a number were doing just fine and managing their finances prudently, but were dragged down unjustly.
If you can find good companies whose shares are depressed for irrational reasons, they could be tasty bargains.
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OK, this one's not a "do now" thing, it's just what you could achieve with a lifetime of rational investing based on a 10-point financial strategy.
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