Hargreaves Lansdown's Ben Yearsley says it is important investors retain a sense of perspective and look to the long-term following the sharp falls in global stock markets.
Global stock markets have seen sharp falls over the past few days. Investors have been unnerved by a combination of factors.
Top of the list is mounting concern that the debt crisis in the euro zone could spread beyond the peripheral nations of Greece, Portugal and Ireland to the much larger economies of Spain and Italy.
The European Central Bank's latest announcements disappointed the market, which had expected a commitment to support (i.e. to buy) Italian and Spanish government bonds. Instead the only commitment given was to buy Irish and Portuguese debt. Bank shares in particular have fallen heavily as a result.
In the past when such situations have arisen, euro zone leaders have re-met over the following few days, and their revised policies have reassured stock markets, at least temporarily, and a strong bounce ensued. It is entirely possible history will repeat itself.
Complicating this issue is a genuine fear of a double-dip recession presently. Global growth is slowing with both the US and the UK recently reporting disappointing figures. In the sell-off this week, the sectors seen as most sensitive to economic conditions, for example mining have been hardest hit.
Meanwhile assets regarded as 'safe havens' such as gold and certain government bonds have seen large inflows. Sharp falls in the stock market naturally make investors nervous and uncomfortable.
However, it is important to retain a sense of perspective - today the market stands at the same level it did 11 months ago. Whilst there are many who buy and sell shares aiming for short-term gains, most investors look to the long term. We expect the majority of investors to ride out the storm, and wait for markets to recover.
In situations such as this the share prices of good companies fall along with bad. For brave investors this creates interesting opportunities.
Legendary investor Warren Buffett advises us to "look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." The market is now over 10% cheaper than it was a week ago. Of course, it could fall further.
However, this could also be a good long-term entry point. If you have cash waiting to be invested, one thing is certain - buying today is not buying at the top of the market.
Unfortunately, the markets are heavily influenced by politicians at present. Many seem utterly clueless as to how to resolve the situation, throwing good money after bad and being reluctant to make unpopular decisions.
The focus could well return to the US Federal Reserve and whether it will now choose to extend its quantitative easing policy. If that happens, expect the prices of shares and commodities to rise once more.
The value of investments can go down as well as up, this means you could get back less than you invested. Therefore all investments should be regarded with a long term view.
This article first appeared on the Hargreaves Lansdown website
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