Investing in a Falling Market

The key to a successful investment strategy is more about time than timing. Investing for the longer term is by far the best investment strategy. The stock market has always carried a certain degree of risk, but investing over the longer term means your investment has time to lessen any volatility in the market.

In a falling market it can be tempting to take your money out quickly. But this is often the worst thing you can do and it will usually only result in losses.

Stock market facts

Historically, falls in share prices, even significant falls caused by stock market corrections, generally even out over time. For example, the FTSE All-Share Index was back to the level it had reached before the crash of October 1987 within two years and had more than doubled its pre-crash value within 10 years (Source: London Stock Exchange).

Well-researched investment decisions should withstand a bear market (a falling market) as well as a bull market (a rising market). Share prices fall due to lack of confidence in the market and not generally because of problems with a particular company. And if you invested in a unit trust, for example, the manager will have a spread of investments.

Losses on paper do not become real until you sell your investments, so it's best not to sell investments when markets are low. If you can hang on, past experience shows that the market is likely to recover and you should be able to sell your investments at a better price some time in the future.

Panic selling can accelerate the downward trend of a falling market.

Many investors try to steer clear of the stock market when it's on the way down, but a falling market can provide a good opportunity to purchase investments at bargain prices.