Date Published: 19/06/2020 10:58
In her latest blog, financial planner Emma Baumback reminds us to keep calm, even when the markets are volatile.
Investing is difficult at the best of times, sitting back and doing nothing when it comes to your money feels counter intuitive. It’s human nature to try to mend something when it is broken.
Whilst selling up and sitting out of the market may seem like the safe option, the trouble is that in volatile times the only time you will know when things have got better is after they already have. It is why they say that time in the market is so much more important than timing the market.
We have spent a great deal of time coaching and calming our clients whose emotions are running high and are worried about their investments and this has paid its dividends as we have seen markets show signs of a rebound in recent weeks.
The FTSE 100, which measures the performance of the biggest companies in the UK, closed at 6,234 points on Tuesday which was 3% higher than the previous trading day. This rally stemmed from the Government’s immediate authorisation to use the drug ‘Dexamethasone’ to reduce Covid-19 death rates following successful clinical trials, and from speculation that Trump was planning a $1 trillion public spending deal. UK retailers opened their doors on Monday for the first time in months to help boost the economy, all of which give investors an optimistic outlook that we are on the road to recovery.
What we do know is that news stories change daily and it is without question that the Conronavirus will continue to shake markets in the short-term. Whilst global cases of the virus continue to fall and restrictions begin to loosen, we now have a very different looking market. Healthcare, technology companies and logistics business are thriving, yet airline, travel and hospitality companies have lost substantial value this year and oil companies are around a third smaller than they were.
Rising unemployment, social distancing continuing in some form and fears of second waves without a vaccine could materially alter the way the economy runs moving forward. Official data from the ONS shows that inflation dropped to 0.5% for May, down from 0.8% in April which means that growth has slowed to the lowest annual rate in four years, despite the stimulus initiatives from the Bank of England and the Treasury to help the population get through the Conronavirus shock. It goes without saying – there is still a lot of uncertainty out there and we have some way to go before we are on the other side of this.
Investors aren’t blind to this and we are now being asked by some if the current market is overpriced and whether now is time to cash in, or would it be beneficial to sell out to cash in on the gain and buy back in when markets fall again? The answer from us is simple; no. There is no reason to jump out of the frying pan and in to the fire. History has proven that missing even the best 10 days in the recovery period could more than halve your long-term returns.
Whilst this climate is uncomfortable, this doesn’t mean long-term investors should be overly concerned. Anyone investing in the stock market should be thinking in terms of five years or more, rather than weeks or months, and that is the context through which to view the current turmoil.
Market shocks like this can be a good test of your risk tolerance. Often people overestimate how much risk they are willing to take, but when faced with the reality of market falls realise they have been a bit optimistic with how much they can tolerate. If your concerns are running high, it’s a great time to have a discussion about your portfolio, wider investment strategy and reassess your goals. The fundamentals of investing never really change - at the heart of it all is the importance of diversification. This is never truer than in times of market stress.
Please do contact us on 01246 435 996 if you want to discuss your investments. We are always here for you.
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