Coronavirus and your investments – part one

No one can avoid this subject right now but, in this article, I want to address the financial concerns, specifically in relation to investments. Global stock markets fell last week, the largest falls over a couple of days for 10 years, although some are moving upwards again at time of writing, and I do not believe this is a major cause for concern.

Stock markets do not like uncertainly and such uncertainly will usually see a drop in major markets. This is largely a knee-jerk reaction and we need not panic.

Most people are (or should largely be) invested in a range of mutual funds with a medium to long-term time frame so should not be affected by a short-term dip. Remember that selling at this time is crystallising a paper loss so is not a recommended course of action. The fact is that all the market downturns in the past 35 years have turned out to be temporary and with hindsight look far less worrying than they did at the time. Of course, the press and media generally love terms such as ‘crash’ that elicit emotional responses but that just causes more worry than is necessary.

We have certainly seen larger falls in shares in the past. In October 1987, the UK’s FTSE 100 Index fell by 11% on what was named Black Monday and then by 12% the following day. That felt cataclysmic at the time. It also felt scary when the tech bubble popped 20 years ago. More recently we had a global credit crisis in 2008 soon after Lehman Brothers, the investment bank, went bust. In each case, markets recovered and the current situation has had a lesser effect on markets.

Every one of these market shocks now just look like blips in the upward trend on a long-term chart of the FTSE 100, or any other major stock market.

My view is that we should worry less about these events and instead focus on our own investment objectives. Focusing on the short-term is rarely beneficial and it has been proven that staying sensibly invested through all market events and for significant periods of time is the right course of action. It has been shown that missing out on a few days of a rising market is more detrimental than missing a few drops. Time is invariably on your side.

Sensible investment, in a diversified portfolio with a level of risk you are comfortable with, is the answer. A spread across markets and sectors will reduce volatility. This could even be a good time to invest, to buy into markets at reduced levels.

There is no doubt that COVID-19, is a major concern and I don’t want to downplay the seriousness. Action is being taken to minimise the spread and this is having an effect on business and thus stock markets. There are disruptions to supply chains, cancellation of events, fewer flights being purchased, so fewer hotel rooms being sold and many more associated effects but most businesses will get through, especially the larger ones with shareholders.

All of my clients have diversified investment portfolios and should not be worried. Markets will always fall as well as rise and we will probably continue to see more volatility than was common 20 years ago but, in time, this will turn out to be another blip on the radar.  I have worked through a significant number of market corrections and falls and am confident of the long-term outcome.

Markets have always bounced back from health scares and financial crises, so relax, and we’ll ride this out just as we have done in the past.

Edit: A follow up to this article was published on 17th March. FinancialUAE – Coronavirus and your investments part 2

I write articles such as this one as part of the holistic personal financial planning service and that I provide to expats, and the general consumer, financial and legal information that I provide in The National newspaper, on Capital Radio UAE, and on the Facebook group British Expats Dubai.

To arrange a meeting to discuss any aspect of your personal financial planning, please email me at keren@holbornassets.com     Please take a look at the other useful articles on this website.

 

About financialuae

A qualified and experienced Independent Financial Adviser based in Dubai, UAE. Professional and ethical. Freelance writer on personal financial issues & the On Your Side column in The National. Regular radio guest. Senior Partner at Holborn Assets LLC, Dubai, UAE.
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1 Response to Coronavirus and your investments – part one

  1. Pingback: Coronavirus and your investments – part 2 | Financial Planning in the UAE

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