I published an article on this topic on 4^th March but with the ongoing situation and further stock markets falls, it is time for another.

With worries and panic across the world in respect of both health and all the knock-on economic issues, we have seen substantial falls in all stock markets so many people are asking what they should do regarding their investments. The falls have been more than anyone expected as the current situation in regard to COVID-19 are simply unprecedented. As before, my general advice is not to sell now, not least as you would simply be crystallising a loss. My clients are all diversified and have suitable risk profiles, in line with their preferences, although I understand if some want to reduce the risk levels a little. Please read on to find out more about what is happening, why, and what we can expect.

My view at the moment is that the greater the short-term economic pain, the greater the long-term prognosis. It is likely that we will have another two, three or even four weeks of uncertainty. Once we get through the worst of this uncertainty the poor economic news across the world is likely to lead to a global recession. How bad that will be, will, in part depend on the action of governments. We will want to see increased fiscal spending and we’ve already seen reductions in interest rates from central banks which is likely to lead to a restart of quantative easing.

This is no magic cure but it’s for a long-term effect, not the short-term. It won’t make much of a difference if the economy is in lockdown but is designed to stabilise conditions. We can expect to see an increase in government spending, globally, although probably slower than we might like.

The current situation is not being helped by market sentiment, the indiscriminate selling by individuals who are panicking. A large proportion of the selling is being driven my market makers and algorithms which are behind much of it. These are computer driven investment strategies that sell at a specific point, without actual thought, and have been exacerbating the problem.

The question now is – where are we going? It really is impossible to call but markets have already discounted a lot of the bad news so write downs, that is share price falls, should not be for an extended period. No one should expect a sudden recovery but positive news about the virus will be helpful. Once we get stabilisation in terms of infection, the markets will be in a position to start looking at a recovery.

That said, there is an expectation that a recovery will be U shaped, rather than a sharp V shaped rise. It will take a while to get traction again but we will get there in time.

Do bear in mind that the stock market figures that are reported in the news do not necessarily correlate to your investments. My clients all have investments in different types of managed funds, in a range of sectors, and not all move directly in line with stock markets. As an example, one of the main Sterling managed funds I use is, at close of business on 16^th March, still showing a positive return over the past 12 months, of 2.85% gross. Others that are pure equity funds, are showing returns rather better than their sector averages. What this has shown is that ETFs are not the magic investment solution that many would claim as most of these are tracker funds and while they will follow a market up, they will also follow it straight back down again.

While we have seen terrible periods in stock markets in the past, they have never been for this reason, a global virus and health scare, so we are in uncharted territory. Trying to time investments is nigh on impossible and over the long time, the best course of action is to remain invested. Too often I have seen people encash at a loss but miss on out a market rise, compounding a loss. No one knows quite when a market will increase.

Waiting it out, from the outside, also means potentially missing some very big up days in the market, which makes an enormous difference in your portfolio’s performance over time. Numerous super-geeky experts have run studies that demonstrate the impact that pulling out of the market has on a portfolio. A study by J P Morgan Asset Management, looking back over the 20-year period from 1^st January 1999, to 31^st December 2018, showed that if you missed the top 10 best days in the stock market, your overall return was cut in half. That’s a significant difference for only 10 days over a period of two decades! The lesson is that investors are rewarded for sticking with their plans over time.

This is why we invest in line with risk tolerance and hang on in there in the rough periods. As I covered in my previous article on this topic here, markets fall as well as rise but they will come back. We are in world that is more volatile than in the past, far more interconnected, and that is also why the minimum investment period I will advise on is five years. Of course, one could argue that this is a good time to invest and it could indeed be. I certainly have clients who want to invest now for the long-term.

No one has a crystal ball, or at least one that works, so while we cannot predict tomorrow, or next week, there are a lot of facts at our disposal that tell us that in time, things will be okay. Some of us who are no longer spring chickens have been through rough times in investment markets before and while I do not like reporting losses, it is just on paper (unless you sell against advice), and we will get through this. I am a safe pair of hands and I hope that the content of this article gives a little comfort, at least from an investment perspective, in these difficult times.

Stay safe. Stay healthy.

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.