The Olympics in Japan, Glastonbury’s 50th year, Brexit. With so many big events on the horizon, who would have thought 2020 would be remembered for a global pandemic? Yet, here we are.
Covid-19 has led to turmoil in the financial markets. The world went into lockdown to fend off the new virus and world economies suffered. Investors have, no doubt, been watching the events unfolding with interest, and perhaps some trepidation, wondering what it all means for their portfolios.
What have the markets been doing?
The coronavirus pandemic has been affecting markets since the beginning of the year. As it is now June, a lot has happened in that time. Here’s a very brief overview:
- When Covid-19 first reared its ugly head in China, investors began cautiously moving money from company shares to government bonds. This was to help protect portfolios should the virus spread
- Share prices tumbled. The FTSE 100 fell 8.3% on the 9th March and trading on Wall Street had to be paused for a time
- By the time lockdown began in March, $26 trillion had been wiped from the value of global equity markets. The value of the dollar had also surged against all other currencies
- Sterling dropped by 5% to its lowest rate since 1985
- Interest rates were cut to 0.1% by the Bank of England and £200bn was injected into the UK economy through bond purchases
- Oil prices took a major hit and found themselves in the extraordinary situation of trading at negative levels
- The VIX fear index reached a high of 85
- UK Government sold three year gilts at a negative yield.
Now, markets have seemingly stabilised somewhat, helped by liberal government action across the globe.
The importance of staying invested
During a market crash, it can be tempting to cut your losses and jump ship. Obviously, we would not recommend doing so. Take comfort in the thought that Terry Smith, of the Fundsmith Equity Fund, is far from concerned.
Be more Terry
Smith remains calm in the face of Covid-19. In April, he wrote a letter of reassurance to shareholders. Within the letter, he suggested that the worst-case scenario would be if two of his holdings, in the holiday and leisure sector, were to go bankrupt. Loosing these two companies would total a loss of 5% of the portfolio. Whilst he obviously would not like that to happen, he has decided he could live with it. If a manager of a £17.8bn fund can live with a 5% loss, maybe you shouldn’t be so worried either?
Smith believes that any drop in the market needs to be viewed relative to previous crises. He commented, ‘the average company in my portfolio has survived two world wars and the Great Depression.’ Safe to say, what we are seeing now is in no shape or form on the same scale as the true catastrophes and existential threats of world wars.
Smith’s level-headed approach means he hasn’t stopped doing what he does best. In fact, he has bought two new holdings for the portfolio, seeing opportunities within these adverse times.
What not to do during a crisis
Remember, no matter what the markets throw at you, there are some things you just shouldn’t do. No matter how tempting they may be.
Guessing what will happen next
Timing the markets hardly ever works, and a global pandemic especially is not the time to test this theory.
Listening to your heart over your head
Big moves in the market can make it difficult for some to remain emotionally distant from their investment. Especially if keeping one eye constantly on the news. At times, it can actually be counterproductive to pay too much attention to these stories.
If you are guilty of this bear in mind that it’s unlikely that you will benefit from every piece of information. You could only end up confused, and what you do take in could have you second guessing your strategy.
Changing your strategy
Don’t be tempted to change your strategy. It is unlikely that any change in the markets will affect your long-term plan. Therefore, you could consider leaving your investment strategy as is.
As ever, we stand by the notion that investing is a long-term practice. A wobbling market does not mean it is time to make any rash decisions about your portfolio.
What does the future hold?
Quite frankly, we just don’t know. No one does. The future of the markets still remains uncertain and we will just have to wait and see. With the economy starting to open up again, however, we can hope that they will continue to improve.
Financial professionals remain optimistic
Natixis Investment Managers published research on 15th June. In this research advisers said they believe the stock market will end up posting moderate declines for the year. Not quite the disaster some were expecting.
Where do we stand?
Here at GreenSky Wealth, we are long-term investors. A conservative long-term approach has always been our objective and ethos. We believe that our portfolios are well balanced and diversified so should continue to do well in the long run. In our opinion, the 10-year outlook for the world economy has not changed and as such, we will continue to hold our position.
If you are in any way concerned about the current state of the markets and how they are affecting your portfolios, get in touch. We will be happy to have a chat.
The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. Past performance is not a reliable indicator of future results.