FTSE 100
The FTSE 100The main stock market index in the UK, the FTSE 100 tracks the performance of the 100 largest companies on the UK stock market. fell by 2.52%* in October 2023. Now I know what you’re thinking – this isn’t great news. But really, it’s not good news or bad news, it’s just news. Remember that as investors, we should tune out the market’s short-term movements.
With a long-term mindset, market declines are more similar to a discount sale. You’re able to buy the same things that you were buying before, like units in funds, but for cheaper. Over time, this will help to increase the total size of your investment portfolio.
But with the Bank of England choosing to hold rates in the UK steady at 5.25% on 2nd November, eyes should turn to the effect this might have on the stock market. If it’s seen as a sign that rates could be due to fall, we might expect to see money moving from savings accounts and into investments over the next six to 12 months.
S&P 500
It was a similar story for the S&P 500 in October, with the US’s main market indexA benchmark that tracks the collective performance of a group of different companies and other assets. posting a loss of 1.18%*. But, since July 31 2023 the index is down by around 8.61%**.
While it sounds scary, it’s again important to zoom out and look at the bigger picture with a long-term mindset. Year to date, the S&P 500 is up 9.67%*** – even despite these recent monthly declines.
Plus, the performance of the S&P 500 is very reliant on the performance of the seven Big Tech stocks (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla. So, when shares in Alphabet recently fell in value on the back of a narrow revenue loss, it got punished by the markets.
This has short-term blowback on the performance of the S&P 500 as a whole – but it shouldn’t be reason to worry.
What to do when the stock market is down
With all that said, I wanted to round off with a quick word on what to do when the stock marketThe global network of stock exchanges that lets investors buy and sell shares in publicly listed companies. is down. The answer, quite simply, is ‘nothing’. Stick to your plan, remember your time horizon, and keep a long-term mindset.
Over the last 50 years, the market has experienced record highs as well as record lows. But it all evens out over time. That’s why a useful metric to use when looking at stock market performance is average annual returns.
In this way, stock market declines aren’t something to fear, because over time they’ll be smoothed out by stock market gains. That’s why investing is referred to as being best for the long term (at least 5 years), and why it’s always better to look at the long-term picture when you’re investing – rather than paying attention to or changing your plan because of short-term market fluctuations.
* Google Finance, 1st October – 31st October
** Google Finance, 31st July – 31st October
***Google Finance, 3rd January – 31st October
