After three weeks of stock market resilience, last week markets took note that the COVID-19 flu pandemic (better known as the coronavirus) is not confined to ‘faraway’ China, but has implications for the global economy as a whole.
As a consequence, investors are repricing corporate earnings prospects – although under a very short term and worst-case perspective.
Coronavirus impact on stock markets
What should I do with my investments?
There is a widely-shared expectation among market analysts and economists that short-term shocks to the system like virus pandemics do not lead to lasting economic declines. Instead, they tend to cause short, sharp slowdowns that are usually outweighed by recoveries soon thereafter.
Events such as these are a reminder of why it’s important to take financial advice and invest in portfolios with prudent and sensible diversification to ensure you are not exposed to any single region or particular sector.
There is no guarantee that the sector that performs well one year, will be top the next. In fact, it’s often the opposite. By spreading investments across different asset types, it is possible to avoid exposing a portfolio to undue risk.
It’s also important to keep in mind that not all investments carry the same level of risk – if you are cautious about investing and simply want to maintain your wealth, there are investments that carry a lower level of risk. This is something an advisers can discuss with you.
When markets are volatile it’s often tempting to exit the market or switch to cash in an attempt to reduce losses, but it’s impossible to time these movements correctly. Not only could a switch leave you with a tax liability, being out of the market for just a few days can have a devastating effect on returns.
For example, using a 25 year term, a £10,000 initial investment by an investor who stays in the markets throughout the period could have had a potential return of nearly four times greater than that of an investor who missed the best 25 days.
During periods of volatility, it is sensible to watch the situation closely, but also important to avoid the temptation to make any knee-jerk decisions and to keep track of the medium-long term view.
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.