Needless to say, we have received a number of questions regarding the affects the fear of Coronavirus is having on investment markets around the World and in particular what do we recommend you do during this time?
I should start by saying this is a new phenomenon in my 29 year career. I have been through two Iraq Wars, countless other conflicts, ‘Biblical’ Hurricanes, Rain and Storms, the Twin Towers, the long running Afghanistan war, on-going global warming, climate change and above all else in my career (from an investment perspective) the “credit crunch of 2007-10”.
Looking back, all of those seem not so important now (from an investor perspective), because the passage of time and economic growth healed the dents made in the short run by long term economic growth and long-term investment growth which we always plan for with our clients. However, I have to concede that these are ‘unchartered waters’ ahead of us all and investors especially, so some things to remember:
- When you met us for the first time, and regularly since that time, you would have been asked to fill out a ‘Risk & Return Questionnaire’ (RRQ). Many of you have even joked that you are almost tired of completing the same – but they are vital to us as a guide to the nature of the investor you are and the level of risk you are prepared to take and your capacity to absorb short term loss without panic or loss of too much sleep.
- Your RRQ would have been used to complete a Risk & Return Profile (RRP). This profile gave your adviser an indication of the level of risk you were prepared to accept, on a scale of 1 (very cautious) to 10 (Very speculative). Your portfolio would have been created in line with that profile and hence, almost all of you will not be 100% exposed to equity markets. So when you hear the Newsreader making sensational comments about the “Billions being wiped off the FTSE 100 index”, it is not the case that your portfolio will be as affected as someone who has invested all of their funds at a category 10 (100% equity).
- Your portfolio will comprise of some investments that may actually go the opposite direction when equities fall as people who jump out of equities look for lower risk alternatives. Your overall portfolio will always have some winners and some losers, but it is widely accepted that 90% of the portfolio performance comes from the “Asset allocation”. That is the nature of the investments that make up your portfolio. For many of you it may be worth going back to your last review analysis and see the ‘dampening effect’ that not having a 100% equity exposure has had on your portfolios. They neither reach the peaks of the FTSE100 or FTSE All-Share index, nor reach the same troughs in the event of a down turn. That will again be true at present.
There are a number of sayings and strategies in Investment Planning and advice. They include:
“It is time you are in the markets, not timing the markets, that determines results”
“Only buy something you’d be perfectly happy to hold if the market shut down for 10 years” Warren Buffett
“We simply attempt to be fearful when others are greedy and greedy when others are fearful” Warren Buffet
So what to do now? There are only essentially three solutions:
- Sell as quickly as possible and take the current price that you get and revert to cash.
- Hold on through the panic knowing that your portfolio is a balanced one, that is designed to ‘smooth out’ the peaks and troughs that have always been associated with long term investment strategies and know that ALL, (every single one), previous sharp correction/crash/loss on markets because of fear of the ‘unknown’, have on average repaired the losses in around 4 months.
- Buy (invest) more now/soon while the price is low and people are panic selling, and enjoy the additional increases from the ‘bounce back’.
I have been candid to tell most of you which I have directly advised, that our Company keeps significant reserves which are invested in areas that are far higher risk than 90% of our investor’s portfolios because we believe that in the long run – 5+ years and longer – they will result in better returns than other lower risk investments. For our Company Investments, and our own personal investments, we will not be selling. We will actually be looking to add more as far as cash flow allows, to eventually enjoy the rebound when the vaccine, or number of infections starts to decline around the World.
One last point worth remembering, in the UK Winter our common colds, and our Influenza cause the serious illness or death of up to 1% of those infected. We do not even think of that as important enough statistic for most to get the standard UK ‘Flu-vaccination’.
To the best of my knowledge, and from the public statistics out there, the Coronavirus has a mortality rate of around 2%. Of those infected 80% will only experience ‘mild symptoms’, so mild they may not even present themselves to medical services. 15% severe symptoms and 5% life threatening symptoms with an overall mortality rate of possibly less than 1.5-2% at the moment. (Source)
Turning back to my investment expectations:
I expect markets to fall further in the short run. This may continue for a while, until a vaccine or cure is mentioned in the World news, or until the number of infections Worldwide starts to reduce – as is already the case in China where this all began. As soon as either of the above occur (vaccine or reduced infections), I expect markets to start to rise again quickly – soon reaching the place they started from and possibly on to further highs as the ‘New Decade Infection’ of Coronavirus recedes back in to History with the rest of Pandemics that have occurred.
We are here to help you make the right decision for you. Contact us at any time between 9am and 6pm.
SIP Wealth Management