What does a stock market fall mean for me?

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The FTSE 100 index fell by more than 230 points this morning, but recovered later in the day. But what does a stock market fall mean for you if you have a pension or investments?

What is the FTSE 100 index?

The first thing, is that the FTSE 100 index isn’t the same as the stock market. The FTSE 100 is made up of the 100 biggest companies whose shares are listed on the London Stock Exchange. Because it’s a ‘weighted’ index, the biggest companies have much more of an influence on how much it rises and falls by than smaller companies.

You can read more about the FTSE 100 index in my article called What is the FTSE 100 index?

What does a fall in the FTSE 100 index mean for my pension or investment?

If you have a final salary pension, a fall like this doesn’t make any difference as it’s the employer’s responsibility to make sure there’s enough money in the pension scheme to pay you the pension you’ve been promised when you retire.

If you have a pension ‘pot’ type of pension, where the amount of money you have when you retire depends on how well the investments have done and how much you’ve paid in, the value of your pot may well have fallen today. The same goes if you’ve invested in a stocks and shares ISA. However, how much it’s fallen by will depend on what you’ve invested your money in.

And just because its value has fallen today doesn’t mean you’ll retire on less or have less when you cash in your ISA. It all depends on what happens to your investments between now and when you plan to retire or take money out of your pension or investment. I certainly wouldn’t do anything rash.

I’ve invested in a FTSE 100 tracker fund, have I lost money?

The answer depends on when you invested your money. Today the FTSE 100 closed at 7141. A year ago it closed at 7172. So if you invested into a FTSE 100 tracker fund a year ago today, it looks like you’d be worse off. However, it may be by more or less than you imagine (and you may not be worse off at all).

For a start, any charges you’ve paid will have an impact. These could increase your losses. But on the other hand some of the companies you’ve invested in via your FTSE 100 tracker fund will have paid a dividend. A dividend is a proportion of a company’s profits that it pays to its shareholders. So even when the FTSE 100 falls, you should have received a dividend payment.

You can find out more about what a dividend is in my article on Understanding dividends from shares.

Is this the start of a crash?

I’m not a stock broker or an economist, so I’m not qualified to tell you. The volatility in the FTSE 100 follows a fall of over 1,100 points in the Dow Jones yesterday. That was sparked by worries of higher interest rates. Sometimes stock markets rise when the economic data doesn’t seem to suggest they should (because investors are over confident) and sometimes investors get spooked and start to sell in large numbers, which then can lead to sharper falls in share prices, which then means more investors sell.

All I can say is that ups and downs in the stock market (sometimes quite dramatic ones) are normal. It may be unnerving or even downright worrying, but it’s what stock markets do. Anyone who tells you otherwise is lying!

Related articles:

The SavvyWoman Podcast 01; Introduction to Investing

Different types of investment funds

What is a stock market or stock exchange? How can you invest?

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