Mar 16, 2020 | BEN WAITE
Published: 16th March 2020
We’re in contact with our clients regularly during this unprecedented time, and we know that you’re all currently facing emotional challenges as well as potential physical ones.
You may be asking yourself whether this health-driven market event is different to those that have gone before. It is, but only because every market fall is driven by a different combination of events that impact on future earnings. What should remain the same is your response to it: avoid panic, avoid unnecessary, emotionally driven investment activity, believe in your portfolio and the power of markets and capitalism to recover in time.
Here are some tips to help keep things in perspective:
1 – Embrace the uncertainty of markets – that’s what delivers strong, long-term returns. Remember that you most likely own bonds in your portfolio too, so it won’t be down as much as the headline figures indicate.
2 – Don’t measure your portfolio’s performance from the top of the market, but over a longer and more sensible timeframe. Take a look at the charts at the bottom of this blog. Over the past five years, investors have experienced growth, and even over the past year, equities are only a little below where they started.
3 – Don’t look at your portfolio too often. Get on with more important things. Once a year is more than enough. If you’re looking every day, then think about how this behaviour is affecting you. If it worries you, then stop listening to all non-essential reporting about the situation.
4 – Accept that you cannot time when to be in and out of markets – it’s simply not possible. Saying things like ‘I knew the market was going to crash’, will not help.
5 – If markets have fallen, remember that you still own everything you did before (the same number of shares in the same companies, and the same bond holdings).
6 – Most crucially, a fall does not turn into a loss unless you sell your investments at the wrong time. If you don’t need the money, why would you sell? Falls in the markets and recoveries to previous highs are likely to sit well inside your long-term investment horizon i.e. when you need your money.
7 – As your advisers, we’ve established the balance between your growth (equity) and defensive (high quality bond) assets to make sure that you can withstand temporary falls in the value of your portfolio, both emotionally and financially. If necessary, we’ll rebalance your portfolio to make sure you have the right level of equities to benefit from future market rises.
8 – Be confident that your (boring) defensive assets will come into their own, protecting your portfolio from some of the equity market falls. You can see this in action in the one-year chart below. Be confident that you have many investment eggs held in different baskets (see Guiding Principle 3 for more info on this).
9 – If you’re taking an income from your portfolio, remember that if equities have fallen in value, you’ll be taking your income from your bonds, not selling equities when they’re down.
10 – We’re here – at any time – to talk to you. We’ll act as your behavioural coach to urge you to stay the course, it’s our job to help you practise discipline.
Figure 1: Five-year returns of global equities (developed and emerging) and high quality bonds
Figure 2: One-year returns of global equities (developed and emerging) and high quality bonds
If you have any questions or need further reassurance please don’t hesitate to get in touch with us.