I have resisted the temptation to ask for a valuation of our very modest investment portfolio, it might be keeping me awake at night! And yet can we simply ignore the Coronavirus effect on investments? Perhaps we can.
So, the FTSE100 has plummeted
You can see in the graph above how the FTSE100 has plummeted, dropped off a cliff. This represents billions being wiped out within just a few hours. People, fund managers, investment clubs etc will have rushed to sell, trying to limit the damages. Some have panicked, others have been pragmatic and followed a preset system of selling once a threshold has been reached (for some, this might be 10% below purchase price).
So it is really easy to be spooked by these falls. It must be easy and act through fear, to cut your losses. Equally, it is easy to have greedy thoughts and try to take advantage of such falls, by buying at the right time, ahead of a recovery and then cashing in once things have recovered.
Interestingly, things have improved in the FTSE100 gradually over the week. We are still in lockdown, the Coronavirus is still pushing that curve steeper, at least it is here in the UK. I must admit, I had thought things would fall further this week, so I have been proved wrong! Overall, there have been dramatic falls in equities during this Coronavirus outbreak.
Clever opportunists have made (and lost) fortunes like this but some would argue this behaviour is no different to gambling. Sure, you can make some short term wins and then lose it all in one go. Our Financial Advisor reminds us it is about “time in the market, not timing the market”. I think he has a really good point there.
For ourselves, I wasn’t really wanting to get a valuation of our portfolio. We don’t keep a particularly close eye on it as we know it has been set up with care and we don’t want to be fazed by short term ups and downs. Nevertheless we will inevitably have taken a hit in the short term.
And yet there have to be a few things to consider here
Firstly, volatile markets often work in both ways: you can sometimes see dramatic falls followed by vigorous recoveries. This is neatly shown in the following diagram covering nearly 40 years.
You can see how historic falls in stock markets have certainly taken place and yet these have been followed by spectacular recoveries. Worth keeping this in mind if you have suffered some significant losses?
This Coronavirus outbreak is unique. We cannot simply say “oh the last time this happened, it was okay because…..”. This time could be very different, especially for equities I think. Many businesses are going to fail, many will have a huge slump in sales and profits. This in turn means lower dividends.
Solutions
1. Long term growth is a good strategy, to ride out those turbulent times with solid, consistent growth. Picking such investments requires skill and knowledge and this is something we don’t have, so we buy the advice. Simple.
2. Don’t be greedy, it isn’t becoming of anyone.
3. Be wary of investing lots in odd markets. I know someone who has a lot of money in gold. I think its a pessimist’s insurance policy as gold has performed well in times of conflict and war. I don’t think that’s a very sound strategy, to be honest, and I’d be tempted to say “be careful what you wish for….”
4. Having a diversified portfolio. This spreads the risk, so when one fund or sector falls, another may rise or at least it will soften the fall. At least that’s the theory! Seriously though, this can be managed through not having complete exposure to, say, equities or property or even bonds. Sometimes they work together, other times they can be at either end of the seesaw and this can be a wise approach, providing the balance is right and it reflects your goal and appetite for risk.
Hopefully these thoughts might be helpful if you have had some heavy investment losses through the Coronavirus outbreak. Don’t panic, especially if you don’t need to cash things in. Talk to your advisor, take some advice, perhaps weathering the storm might pay off in the long run.
As ever, please remember I’m not a financial advisor, I’m just an ordinary bloke. You should always take proper, professional advice in these circumstances as something we have done might not be applicable to you.