2020 will live long in the minds of everyone for many years to come. Covid-19 will cast a long shadow over these memories, as we will reflect back on the devastation this awful virus has caused. We will remember the bereavements we have suffered and the illness that has been experienced by many people.
Apart from the health impacts, people will also remember the economic carnage that Covid-19 has wrought across the globe. Record levels of sudden unemployment have been experienced with many businesses disappearing or hugely damaged.
All of this has also had an immediate impact on our investments and pensions, particularly those that are invested in stock markets around the world. We saw a sharp fall in markets at the beginning of the crisis, with quite a sizeable recovery since. While we certainly cannot predict what the future holds, it is
probably prudent to be prepared for volatility in markets to continue for some time. This volatility can be very unsettling, so here are a few thoughts to help you through these times.
Volatility is a feature of investment markets
Volatility is simply one feature of investing. Markets go through periods of calm, and they go through periods of uncertainty. The key is to avoid rash decisions being made based on this short-term volatility. You set up your investments and pensions with a long-term plan in mind. Now is not the time
to abandon that plan and to start reacting to short-term factors.
If you are struggling though with the volatility, it is possible that your financial plan may not correctly reflect your appetite for volatility and risk. If this is the case, talk to us, and we can review your situation with you.
Stay invested
Don’t try and time the markets. Many investors suffered the losses at the beginning of this crisis and then moved their investments to cash. They then missed the recovery that followed, locking in their losses. Now, when is the right time for them to invest again? You don’t know where markets will go
tomorrow and nor do we.
Successful investors in history are those who have adopted a “buy and hold” approach based upon a long-term plan and not short-term market movements. A nice analogy for investments is a bar of soap – the more you touch it, the more it disappears.
Stay diversified
Having a diversified portfolio is really important too. Having some stocks, maybe some property, bonds and cash will ensure that as one asset class is affected, your whole portfolio is not necessarily impacted. Diversification is a great way to spread your risk. Likewise, within an asset category, this diversification is important too. Owning a basket of many stocks across different sectors will help to manage your risk. Yes, your diversified fund may currently have some airline stocks in it, but it will likely also have some pharmaceutical stocks too. Some may go down, others will go up.
The key to successful investing in these challenging times is to shut out the short-term noise and stay
focused on your long-term objectives.