Despite an afternoon rally the FTSE100 closed yesterday at 7,141.40, down 8.2 per cent from its all-time high of 7,778.6 on January 12.
Investors are selling because they fear rising inflation will force central bankers to hike interest rates faster to keep a lid on prices and this will hit business and stock market growth.
Jane Sydenham, investment director at Rathbones, said there is no need to panic as interest rates are only rising because the economic background is stable enough to handle it.
“It is rare for bear markets to occur unless investors believe a recession is coming. We are not expecting that,” she said.
Heartwood investment director Graham Harwood said the global economy remains in good shape with robust and synchronised growth: “Inflation may be starting to rise, but is still historically quite low.”
The message is getting through to ordinary investors, with Mark Taylor, chief customer officer at broker Selftrade, reporting few signs of panic among its customers: “Many have cash on the sidelines waiting to pick up some bargains instead.”
Laith Khalaf, senior analyst at wealth adviser Hargreaves Lansdown, said the crash follows two years of share price growth and low volatility: “Global shares are trading 20 per cent higher than a year ago so it is important to keep some perspective.”
Markets can be volatile but offer better growth opportunities in the longer run. He added: “Anyone saving for retirement should consider the market as a friend rather than a foe.”
MONEYTOTHEMASSEs.com director Damien Fahy said most investors are better off holding tight in a market correction: “By selling up you will crystallise your losses and will also miss any market bounce, which could happen at any time.”
History shows that the best days on the stock market often occur within weeks of the worst, as investors pile in looking for discounted shares.
Stock markets will always suffer sharp sell-offs from time to time. Fahy added: “If that makes you uncomfortable then you should question whether you should be investing at all.”
Patrick Connolly, certified financial planner at Chase de Vere, said the slump follows a nine-year bull run so most investors remain nicely ahead.
If you do not need your pension or stocks and shares Isa savings for a few years, you can sit back and wait for the recovery. However, those who need their money in the immediate future should reduce their exposure.
Younger investors have time on their side, but as you get older capital protection does become more important. Connolly said: “Consider spreading some of your portfolio across different assets such as bonds, cash and commercial property, in the right proportions to meet your objectives and attitude to risk.”
Those who invest regular monthly amounts in the market should benefit from current volatility. He added: “Your monthly contribution will pick up more stock, boosting its value when markets recover, as they always do in the end.”
Braver investors could even seize the day and buy more shares or funds at current reduced prices. People who did this in the last sell-off in January 2016 benefited as markets soon rallied.
He added too many people who base investment decisions on short-term performance risk buying at the top of the market when sentiment is positive and selling at the bottom when it is negative: “Adopt a long-term strategy, avoid all the short-term noise. The most important thing is to stay calm and rational.”