It’s hard to miss the reports in the news at the moment regarding the coronavirus (COVID-19) and although disappointing, it will not be surprising to see that recent events may have impacted the value of your investments and pensions.
Under regulations introduced under MifID II, firms are now required to notify clients who hold discretionary portfolios, when the overall value of their investments fall by 10% over a reporting period. Due to recent events, this notification will have been generated by many investment companies and sent to clients for the first time.
How will the coronavirus affect my investments?
The main costs of this outbreak will fall upon governments and businesses will face a period of disruption. The key question is how long this period of disruption will last and markets are likely to become more settled once this is determined.
Individuals and trustees invested in diversified and managed portfolio’s will benefit from this style of management, which although will not make them immune, will help to cushion values from the more extreme falls seen in the FTSE 100, which is the main index we see reported on in the media.
Managed and sensibly diversified portfolio’s may also benefit from a shorter ‘recovery period’ compared to investing directly into a share index, like the FTSE.
Advice for investors
Sadly, we all lack a crystal ball to tell us exactly what will occur, but when uncertainty has occurred before it is a question of sitting on our hands and riding the storm. We need to remember investing is a strategy for the medium to longer term and the roller coaster ride is a bumpy one. Your adviser will have made sure you have a healthy cash balance in the bank for emergencies and short term needs, your income is comfortably covering your daily expenses and for the amount you have invested, you can afford to ride out the ups and downs.
We know the economy is in the process of taking a big hit. Many analysts feel reasonably confident that the worst economic effects will be transitory (weeks and months but not years). Bond markets are now signalling that cash rates will be more or less zero indefinitely and that interest rate support for the economy is at its limit. Yet in comparison equities offer a generous dividend yield. Even the low payout S&P 500 is on a 2.5% yield, whereas the FTSE All Share offers over 6.0%. Even if we factor in say a 20% reduction in dividends (which is extreme) the All Share yield looks good.
This is not the moment to be making panicky sales from what are longer term investments and as uncomfortable as it seems in the short term, be reassured that markets invariably recover from shocks such as these. Trying to call market bottoms during rapid sell off such as these is futile but it is likely in a few years’ time that the current market level will be seen to have been an opportunity.
If you are feeling worried, don’t hesitate to speak to your financial adviser, who can help to rationalise these short term dips and reassure you that your long term goals are still on track. This is what your financial adviser is for and they would much prefer to have a telephone call with you to help calm any uncertainty you may be feeling than leave you worrying.
Here at Nelsons we proactively contact clients who we feel may benefit from that extra degree of reassurance. This is the value an ongoing relationship with an independent financial adviser can provide to you.
How Nelsons can help
Zoe Till is an Independent Financial Adviser in our expert Investment Management team.
For advice regarding your investments, please get in touch with Zoe or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.