Market Update from Money Matters
As we write, the world is in the midst of the Coronavirus pandemic, and if you’re anything like us, your main focus is on keeping your nearest and dearest healthy. Whilst we can’t offer any health advice, where we can assist is by helping you make the right financial decisions in what can only be described as extraordinary circumstances.
Stock markets have acted as we’d expect, negatively. The stock market is sensitive to a number of different factors and as these change, so do the prices of stocks and shares. Right now, these factors are negative (as reflected in the current value of the FTSE and other worldwide indices), but when these factors change, prices will change again.
It’s important to remember that the stockmarket overreacts in both directions. This is because the markets ultimately feed off two powerful human emotions, greed and fear. We don’t know with foresight when the market will ‘turn’, nobody does (even the most talented fund manager can’t predict the future). Historically, the stockmarket has always suffered during health crises, but has gone on to rise again, although you should always bear in mind that past performance is no guarantee of future performance.
The below chart shows previous epidemics and their effect on global markets:
However, you should be reassured that you have a diversified portfolio, and whilst we are experiencing declines now, your portfolio is aligned to your long-term goals. When markets are low, fund managers seek out opportunities for investment that will help with the rebound, whenever that may be.
We know from our own personal experience within the Money Matters team, how painful it is to see your portfolio decline. However, knowing that the correct thing to do is ‘do nothing’ will see us all through this. We have enough to deal with through the change and disruption of our lifestyles, without compounding the issue by making financial mistakes with our investments.
In a declining market, history would suggest that the worst financial action an investor can make is to sell their portfolio. Put simply, successful investors in the past have generally been patient.
That said, we do appreciate that some clients are taking regular withdrawals/income and where that is the case, we would ask you to consider whether it is necessary for these withdrawals to continue at the same level. Should you wish to reduce your income to help protect your capital, please get in touch with us. Equally, if you were planning to take a lump sum out of your investments, we would encourage you to consider alternative sources.
Now for some good news. Going into this crisis we were in a strong position economically, with a decade plus of strong stockmarket performance and unemployment at historical lows. We also live in a globally connected world with all the utilities and resources to address this pandemic head-on.
There will be some good consequences from the crisis, such as
Focusing on what’s important; the people we spend our time with, places to visit and things to achieve.
Conscious spending; buying what we really need to get by.
Community spirit; we’ve all heard the ‘bad’ news stories about the fights over the last packet of toilet rolls, but what about the #helpinghands appeal raising £64k in just one day to provide hygiene essentials to those who can’t afford to protect themselves and their families from Coronavirus.
Also, don’t forget that if you’re investing every month, this is effectively a temporary market sale, which is good news for your automatic monthly contributions.
Clearly we cannot foresee at what levels the markets will bottom, when this will occur and indeed how long a recovery will take. But we have been here before and the history books show that patience plays a key role.
Keep safe, keep positive and if you wish to discuss anything please call or email the office.
As always, we’re here for you.
Alastair, Chris, Craig and the Money Matters team
If it matters to you, it matters to us.
Second opinion service: If any of your friends, family or colleagues wish to speak to a financial professional at this unprecedented time, please do pass on our details. Some clients have asked us to help friends and family already. We want to help as many people as we can make wise financial decisions. We are only too aware some people have no professional adviser to guide them and the wrong decisions taken at this time can have huge consequences.