Investing in 2020: Don’t Panic, Stay the Course

This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.

The first three months of 2020 have certainly been far from uneventful. With the coronavirus (COVID-19) continuing to spread across the UK and wider world, many are concerned about what this means for their investments and financial security. As financial advisers here in Nottingham, Grantham and wider Midlands, it is our job to bring clarity and well-grounded solutions to these important questions.

We offer this article on investing in 2020 to help inform and inspire your thinking. If you would like to discuss any of these matters or discuss your own financial plan with us please get in touch to arrange a no-obligation financial consultation, at our expense:

01476 591022
info@casfin.co.uk

March 2020: Investment Round-Up

In recent weeks, the markets seem to have realised the seriousness of the COVID-19 outbreak, having originally retained a high degree of confidence that the outbreak would be contained. At the time of writing, however, the situation appears volatile and unpredictable. On Monday 9th of March, US stocks suffered their worst day since the 2008 financial crisis. The FTSE 100 also fell by 20% from its peak, and crude oil prices also fell dramatically by 30% to about $30 a barrel, sparking an oil-price war between Russia and Saudi Arabia.

The drop in oil prices could be seen as positive by investors who have stakes in sectors such as aviation, which might lead to a rise in profit margins. Yet widespread travel restrictions have led to a reduction in passenger numbers, and presently EasyJet has fallen by 4% and Tui by 9%. Flybe has collapsed completely.

Implications for Investors

What are investors to do in light of such volatility? In short, simple terms: stay the course.

As financial advisers, we spend every day analysing investments and managing portfolios. We are all-too-familiar with the natural human impulse to want to “abandon ship” when the seas get rough. Yet it’s important to look at what you would be jumping into. If you sell your shares during a bear market, it simply serves to crystallise your losses. If you hold steady and trust in your investment strategy, however, there is a high chance that your portfolio will make it through.

By continuing to contribute to your portfolio during difficult economic times, moreover, you also stand to grow your wealth even more in the long-term through “pound-cost averaging” (PCA). This approach involves spreading your investments out over time, rather than committing a large lump sum to your portfolio (when the market might suddenly fall). The PCA approach allows you to cushion your short-term losses if you make an investment, and the market suddenly goes down.

In other words, our Nottingham financial advisers would caution against trying to time the market in light of the volatility caused by COVID-19, and other market forces. It’s impossible to accurately predict which sectors, companies and markets will perform better or worse in 2020, so be careful not to try and jump in (or out) of an investment based on imperfect information about what will, or will not, imminently happen.

Coronavirus: How to manage investor emotions

This might sound reasonable in theory, but how are you supposed to “stay the course” when the media is constantly broadcasting messages of panic, instability and even recession? Here are some tips from our financial advisers in the Midlands, which we hope will help you:

• Remember why you’re investing. Are you investing to create short-term gains, or to build and retain wealth over the long-term? The latter is the established way of investing amongst financial planners, and this approach necessarily involves expecting the market to rise and fall during the years and decades you are invested.
• Stay diversified. If all of your investments are in one company, sector or asset type, then this will likely create further stress and panic. Being properly diversified helps your portfolio to minimise short-term losses. Remember, if your stocks are currently doing “badly” then you should have other investments to help cushion the impact (e.g. cash or fixed-income securities, such as bonds).
• Remember the past. If your portfolio is experiencing turbulence, cast your mind back. Have similar events occurred in the past? Did your portfolio come through to the other side despite the volatility and short-term downward performance? The 2008 Financial Crash is a case in point, with many portfolios stronger now having remained in the market, despite the damage to investments that was occurring at the time.
• You don’t lose until you leave. As mentioned above, when your investments go down in value during a bear market, you haven’t actually “lost” anything until you sell them at a lower price compared to what you originally paid for them. Keeping this in mind should help you to think twice before “panic selling”.
• Voice your concerns. One of the benefits of ongoing, professional financial advice is that it allows you to access a vital “sounding board” prior to making any important investment decisions. Quite often, our financial advisers here in the Midlands have been able to ask clients important questions which they might not have asked themselves, which can then give them the strength and insight needed to avoid poor decision-making. Even the best, most experienced investors have blind spots, and benefit from the wisdom of others.

Invitation

If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 591022
info@casfin.co.uk