Small investors urged to sit tight

Small investors are being urged not to panic as the FTSE-100 Index plunged through the 5000 mark.

The falls in the stock market have hit the millions of individuals who have money invested in shares.

Although relatively few now hold shares directly, most have investments in the stock market through pensions, endowment policies, and Individual Savings Accounts (ISA).

And analysts are forecasting the worst could still be to come with some estimating the market could reach 4700 before recovering.

But pensions and investment groups were urging people to sit tight and not panic.

Robert Guy, technical director at the MarketPlace at Bradford & Bingley, thinks the falls will only be "relatively" short term and it is important people remembered their pension is a long-term investment.

He says the worst hit are those about to retire, who will be forced to chose between using their pension fund to buy an annuity, which are currently at historically low levels, or keeping the money invested in equities.

Brian Wilson, head of benefits research at actuaries and consultants Bacon & Woodrow, agreed that people should not panic and withdraw their investment.

B&W recently warned that 17 FTSE 100 companies had pension schemes that were underfunded by millions of pounds due to falling equities and interest rates and increased life expectancy.

But Mr Wilson said the severity of the situation for people who were members of final salary schemes would depend on when the stock exchange rebounded.

He said many schemes had had very good returns up to 18 months ago but warned that if the market did not pick up soon firms would have to consider investing more in their company schemes.

Mr Wilson said people who were about to retire and were not members of final salary schemes should not panic as when people approached retirement their funds were increasingly put into less risky investments such as gilts, which protect them from short-term fluctuations in the market.

But he added that those who would be hardest hit by the falls were people who were retiring early or unexpectedly and had not transferred their fund to less risky investments.