The stock market has reacted badly following the revelation that Lehman Brothers, the giant US investment bank has filed for bankruptcy, leaving investors wondering how to protect their savings.
By Paul Farrow
Published: 1:33PM BST 15 Sep 2008
In London staff at the bank's Canary Wharf offices turned up to work to hear the bad news Photo: ANTHONY UPTON
Millions rely on shares to provide for their retirement and the pessimistic outlook has left them asking: "Should I hold on to my shares, or cut and run before it's too late?''
With shares down more than 20 per cent on their peak, many will be tempted to sell. But the experts will tell you that even if you are sitting on losses, it may pay to grit your teeth and see the crisis through – particularly if you have held on through the past year. Are you investing for short-term profit or a long-term nest egg? If you are saving for retirement then hanging on to your shares could be the wisest decision.
'This is a once in a decade buying opportunity.'
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Mark Dampier, head of research at Hargreaves Lansdown, says: "I think it is actually good news, although I understand why investors will have the jitters – they need to hold their nerve if they can. We need some banks to go under – the quicker that happens the quicker we can get out of this mess and it means we are a step nearer the bottom. It is not all good news, the economy will get worse, but much of that is priced in the stock market - we all knew Lehman was in trouble and it has not been that much of a surprise.
No one can predict what will happen and the best way to avoid boom-and-bust cycles is to make objective investment decisions that ignore fashions. There will be those managers who argue that the volatility will trigger buying opportunities, but there is no doubt that caution is the operative word at this juncture. The advice from the great and the good is not to panic.
But if you haven't already, it would be well worth reviewing your holdings to see if you are overexposed to any asset class or classes. Diversification and getting the balance right are vital.
Dampier – who has around 25 per cent of his own portfolio in cash – is buying shares on their bad days to take advantage of the price dips. He adds: "I think the FTSE100 will fall to below 5,000, but investing is never easy, but it is when markets are bad that it is the right time to stay invested - if you wait until share prices have stabilised you will have missed out on the gains.