Financial markets have seen dramatic drops due to the coronavirus pandemic. However, investors can take heart from the maxim that markets always recover in time, as Brian Ollerton explains.
Personal investments have suffered drastic falls recently and it’s only natural to be worried during these challenging times.
We simply don’t know how long this truly unprecedented and highly volatile situation will last, or how hard the economic hit will be. But if investment history tells us anything, it’s that markets do eventually bounce back.
So it’s crucial to keep in mind that investment strategies are made for the long term. For most people, the best thing to do is stay patient and sit tight.
The dangers of panic selling
The urge to cut your losses and sell investments as you watch their value drop by 10 per cent and more should not be underestimated – but it must be resisted.
The challenges of ‘timing the market’ are astonishingly tricky, with many professionals failing to get it right every time.
Another important factor to consider is that even if the markets continue to fall, nobody has a crystal ball that will reveal when the bottom of the curve has been reached. This being so, panic sellers may lose out significantly when prices start to rise again.
In addition, panic selling tends to trigger panic buying – which is just as risky for the protection of your wealth.
Making sure you have balanced investments
Sitting tight doesn’t mean you should do nothing and reviewing whether the mix in your investment portfolio is the correct one for you is time well spent.
You need to be comfortable with the risk profile of your investments – how various elements work together in your best interest.
A strong football team makes a good analogy: relying on flair players who can score spectacular goals must be evened out by a solid back line that will stop you conceding goals. Therefore, today’s uncertain climate means high-growth corporate investments, for example, should be regarded with caution, while investments such as government bonds will add much-needed steel to your defence.
Thinking ahead to decide which sectors to invest in
In the longer term, it’s also worth considering that, while ‘safer’ stocks such as supermarket chains, utility companies and pharmaceutical firms have fallen least, they are also likely to rise more modestly when the market eventually bounces back.
Moreover, everything is relative and it should be remembered that even shares in these ‘defensive’ sectors are still down significantly, albeit not as much as other industries.
Another factor you should take into account is that many strong brands with solid cash positions and substantial market share have been caught up in the general market downturn. These are the businesses likely to take a less damaging financial hit from the ongoing crisis, and will be popular among savvy investors going forward.
When all is said and done, you need to be relaxed with the ‘line-up’ of your investment portfolio, so only contemplate tips on shares or funds if they meet your personal investment requirements and maintain the equilibrium that a diversified portfolio should deliver.
If you are unsure how the coronavirus crisis is impacting your investments, whether you should take action, or need to update any transactions, contact Brian Ollerton on 01706 233 415 or email him at brian.ollerton@whnsolicitors.co.uk
