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Source: Just Service The global COVID-19 outbreak has sent global stock markets into chaos. With massive drops followed by huge rebounds day after day, volatility has become an ever-present force that investors have to manage. Anyone who follows the news knows that the world’s economies are going through a prolonged spell of volatility. It’s natural at these times for some investors to have concerns. Now, more than ever, it is imperative that investors avoid making decisions motivated by fear. The importance of staying invested cannot be overstated, even as markets continue to plunge.
Staying the course
Experienced investors know that investing is a long-term commitment. Historically, investors who have been able and willing to ride out the periods of decline in the markets have seen their investments recover. Investing with a long-term outlook and with long-term goals is the best way to reduce the impact of stock market fluctuations and see out periods of volatility. The chart below shows that short-term volatility is a characteristic of investing, but over the long term the trend is a rising one.
Note in particular, regular savings plans are fantastic vehicles for taking advantage of “Dollar Cost Averaging” (if not sure - its worth Googling). As prices crash, you continue to buy at lower prices. Once prices rise again (which they always do), then you can see significant gains. Monthly payments are the best for this. If you are positioned in line with your risk profile, this will work. As you draw nearer to the time you need the money, your profile will become more cautious and so the fund mix should start to reflect that, protecting gains.
The chart below demonstrates the performance of different asset classes following a few historical crises
Past performance is not a guide to the future. The value of units may fall as well as rise. Source: Quilter Investors as at 31 December 2019. Based on an initial investment of £10,000 over the period 31 December 1996 to 31 December 2019. Gross return in pounds sterling. Global Corporate Bonds is represented by the ICE BofAML Global Corporate index; Global equity by the MSCI World Index; and Cash by the ICE BofAML British Pound Overnight Deposit Offered Rate. The information provided is for illustrative purposes only and doesn’t represent the past performance of any particular investment. It is not possible to invest directly into an index. Plotting your course - deciding on your viewpoint While we recognize that clients are trying to comprehend the impact of these events and asking where to turn, it’s well worth remembering the famous quote from the legendary investor Warren Buffet: “Be fearful when others are greedy and greedy when others are fearful.”
From the diagram above, we can conclude we are currently in Phase 2- and possibly at, or close to Phase 3 of a four-stage process of decline and recovery. JP Morgan has commented that historic episodes of market downturn due to health scares didn’t lead to extended periods of equity selling and, in fact, became buying opportunities within weeks, with local indices rising 23% on average in the three months after the global peak in the health scare. If you have any questions on the above or about your financial products see make contact with your adviser. We are here to help support you in these challenging times. Regards Phil Neilson Managing Director
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