With the world in lock down, what do I do with my investments?
The team at Just Service Global hope all clients using our service are staying safe and taking due care in such difficult times.
We take this opportunity to offer some contrasting views from assorted sources:
During Times of Market Volatility and High Emotions...TAKE A DEEP BREATH AND remain calm
Source: Asia Wealth Investment Daily
Every crash is unique and different. Every crash is unforeseen (although sometimes broadly predicted), and shocking. Every crash is exacerbated by fear and bad reactions. But all crashes have certain features in common:
There’s a market drop, a period the markets are in the doldrums, and a recovery. Sometimes the crash actually takes over a year to reach its trough. Sometimes the doldrums lasts for a couple of years.
The last crash (2008) took just over 4 years to return the FTSE all-share to pre crash levels.
Traditionally an investment advisers role during each of these three phases is to advise their clients to hold, hold and buy, whilst clients instinctively want to sell, sell and hold during the same periods.
Why the 2020 Stock Market Crash Is the Wealth-Building Opportunity of a Lifetime
Source: Investors Trust
We’re only a few months into 2020, and already it’s shaping up to be one of the most volatile years in financial history. 10% swings are becoming common, as investors scramble to make sense of changing market conditions.
In such an environment, most peoples’ natural instinct is to panic. As an investor, you need to do the opposite. In fact, widespread panic is all the more reason to stay the course. The more investors pull their money out of the markets, the cheaper stocks will get. That means higher dividend yields and bigger returns on the inevitable upswing. In fact, if oil recovers and the corona-virus passes, this month will prove to have been the wealth-building opportunity of a lifetime. Here’s why.
Stock prices are falling even in industries that will thrive
Not all industries will be hurt by the market conditions we’re seeing right now. In fact, some will benefit from them: dollar stores are a prime example. Despite this, nearly all stocks are seeing their prices fall. That includes companies whose earnings will be affected by this downturn and those that won’t be. Obviously, some good companies are getting unfairly beaten down.
As scary as it is, the stock market has fallen over 10% 37 other times in the last 70 years. And it comes back every time, meaning that buying during a correction can produce out sized long-term gains.
With time on your side, focus on the long term and take advantage of strategies to help secure your investments.
Dollar Cost Averaging
The strategy of placing a fixed dollar amount into a given investment on a regular basis. It takes place each month regardless of what’s happening in the financial markets. Rather than purchasing shares all at once at the same price, with dollar cost averaging, you are spreading out the purchasing of shares at different times and rates. Thus, this strategy eliminates the issue of market timing, as the investor’s returns are determined by an overall trend of the given stock as opposed to the investor’s specific entry price.
Just because the markets are volatile, it does not mean you have to lose your focus and alter your contributions. It is important to maintain your current contributions and focus on the long-term goal.
In conclusion, from our team at Just Service:
The question always arises of what one should do with their investments in a Bear market. There is no easy answer however we will repeat advice that has been given via our communications over the last 12 months. For guidance, our house view is bearish i.e. we believe the market generally trend down over the next couple of years. This is primarily because of an 11 year Bull market where the markets have been trending positively. It has been the longest Bull market in history.
But taking a defensive position with your investments does need to be considered along with other factors. The most significant factors are 1. Whether your investments are sitting in products where you contribute on a regular basis and 2. your time horizon. It should be a given that your risk profile always drives the asset allocation i.e. what asset classes your money is invested in and the corresponding risks of each holding.
For those who have products where you invest on a regular basis and you have at least two for three more years of investing ahead of you, do not worry too much about the markets as the concept of "dollar cost averaging" will mean you should still receive a good return on your funds even in volatile or downward trending markets.
Having said this, if you have built up a large holding within an investment product where you make regular contributions you should still treat the existing holdings as a lump sum that should be positioned very defensively.
This brings us to single contribution investments. Unless you are extremely brave with an adventurous risk profile, today's environment is one in which your investment portfolios should be very conservative/defensive. Some hedge products would not be considered conservative but they can be very important when markets are trending down.
If you have any doubt at all about your existing investments and how well positioned they are, talk to your Just Service adviser with the greatest of urgency.
As always talk to your adviser within the Just Service network if you would like information or otherwise review your savings, investment or pension plans.
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The Just Service Client Service Team
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