Severe volatility in global investment markets, caused by the coronavirus, has had a notable impact on investment values.
Investment markets had performed well over a number of years prior to the outbreak of Covid-19, but the virus has sadly put paid to that. Since the start of the year, the FTSE 100 has fallen by 25% (as of 31 March), and at one point, had dipped by more than 34%.
Hopefully, this is just temporary, but there is no getting away from the fact that these are worrying times. Bearing in mind the UK and many other countries are in lockdown, there are concerns that, when the enormity of this shows its teeth in most world economies, markets may well have further to fall before we get through this.
While the FTSE 100 is not the best barometer or guide to how a well-balanced investment portfolio would be put together, it is an index we all know and recognise. Interestingly, over the past few weeks, we have seen a ‘levelling off’ of the FTSE 100 index above the 5,000 mark.
At Nelsons, we’re seeing the benefit of our active management strategy across our risk-targeted portfolios. While there are still reductions in values, they are not to the same extent, or depth, that most indices have fallen by.
It is likely that markets will experience further volatility and may go down further still in the short term – but it is hard to predict by how much.
The quite drastic measures put in place to slow down the spread of the virus were clearly needed but have impacted global economies and markets. Once there are some positive statistics and clear signs we are managing the virus, it is likely this will be the tipping point where news gets better and markets should then start to turn the corner.
A more active approach to investment management in times like these is more likely to reduce overall losses, volatility and downside risk.
Medium to longer term investments
It is always important to ensure you have sufficient money in your contingency fund to avoid, if possible, cashing out of investments at the wrong time.
If you have plenty of cash, the time horizon for monies invested should remain longer term – five years plus – and therefore, if you are already invested, you should consider remaining so. As long, of course, as the impact of these recent short-term falls does not have an immediate effect on your standard of living.
Sadly, we all lack a crystal ball to tell us exactly what will transpire, but when uncertainty has occurred before, it has been a question of waiting and riding out the storm. We need to be reminded that, if invested in investments that carry an element of risk, then the overall strategy should remain one for the medium to longer term.
Investing can be a little like a rollercoaster ride – a long one, on which most of us will experience risk, both good and bad – but now is perhaps not the best time to be getting off it.
Investing new capital
If you have monies sitting in cash, would you have any appetite to invest capital over the next few weeks or months. Looking back, the greatest returns tend to be achieved at the points of perceived highest risk.
It is worth considering that when a potential purchase is at a sizeable discount, do we wait to see if it goes down further still, or do we buy?
Having said that, it is more a question of time in the market than timing the market; although a good start always helps.
Although our physical offices closed on 24th March, business is continuing as usual as our teams have all the necessary technology to enable agile and secure working, meaning they are still able to engage with and service clients from home as they would in the office.