Doom-mongers are doing a roaring trade. Earlier this month, the Bank of England and the International Monetary Fund both warned about sky-high valuations of tech companies and drew parallels to the dot com bubble. Even OpenAI’s Sam Altman recognised some parts of AI were “kind of bubbly” – although he says OpenAI isn’t one of them.
You can tell some investors are concerned because of the way the gold price has soared – which tends to be considered a relative ‘safe haven’ at times like this – so you may well be wondering what to do about it.
Before anyone gets carried away, it’s important to recognise that while valuations look stretched for tech companies, that’s not necessarily the case elsewhere in the market. So, while there may be a correction to come, there’s no absolute guarantee it will take hold of the wider marker.
However, this kind of talk can be worrying, so it’s worth having an action plan. The key is not to panic. If you’re an investor, it’s sensible to revisit your portfolio, so you know exactly what you hold and whether it suits your needs. If you’re happy with your choices over the long term, often the most sensible answer is to do nothing.
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The value of your investments will rise and fall, and in some cases, they will do so very quickly, which is unsettling. However, timing the market is notoriously difficult. It’s why the most sensible approach is to aim for spending more time in the markets – holding the right assets and remaining invested for five to 10 years or more. That will give you time to ride out the short-term ups and downs and take advantage of long-term growth.
Unfortunately, the doomsayers haven’t stopped with the markets. They’re pointing out that it’s just one of several things threatening our finances. That long list includes a weakening jobs market, falling consumer confidence, inflation above the Bank of England target, a sluggish property market and worries about what the budget might hold. It’s a list that’s pretty hard to ignore.
It’s important not to get carried away though. While it may feel like things are moving in the wrong direction, measures such as inflation and unemployment are relatively low by historic standards, and interest rates have fallen.
However, given the uncertainties ahead, it’s worth considering your safety nets.
For many people, emergency savings are the backbone of their financial resilience. While you’re working age, you should work towards having enough cash to cover three to six months’ worth of essential spending. If this leaves you with a long way to go, don’t be disheartened, because anything is better than nothing.